Commodity Forward Curves with Stochastic Time Change PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Commodity Forward Curves with Stochastic Time Change PDF full book. Access full book title Commodity Forward Curves with Stochastic Time Change by Svetlana Borovkova. Download full books in PDF and EPUB format.
Author: Svetlana Borovkova
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Get Book Here
Book Description
ABSTRACT. Using a powerful technique of stochastic time change, we introduce a new two factor commodity price model, where one of the fundamental factors is the activity rate of the stochastic clock. This factor implicitly introduces stochastic volatility into the model. The model is developed under both physical and risk neutral probability measures, which allows for a wide range of applications ranging from derivatives pricing to risk management.
Author: Svetlana Borovkova
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Get Book Here
Book Description
ABSTRACT. Using a powerful technique of stochastic time change, we introduce a new two factor commodity price model, where one of the fundamental factors is the activity rate of the stochastic clock. This factor implicitly introduces stochastic volatility into the model. The model is developed under both physical and risk neutral probability measures, which allows for a wide range of applications ranging from derivatives pricing to risk management.
Author: Fred Espen Benth
Publisher: Springer Nature
ISBN: 3031403673
Category : Mathematics
Languages : en
Pages : 250
Get Book Here
Book Description
This monograph presents a theory for random field models in time and space, viewed as stochastic processes with values in a Hilbert space, to model the stochastic dynamics of forward and futures prices in energy, power, and commodity markets. In this book, the well-known Heath–Jarrow–Morton approach from interest rate theory is adopted and extended into an infinite-dimensional framework, allowing for flexible modeling of price stochasticity across time and along the term structure curve. Various models are introduced based on stochastic partial differential equations with infinite-dimensional Lévy processes as noise drivers, emphasizing random fields described by low-dimensional parametric covariance functions instead of classical high-dimensional factor models. The Filipović space, a separable Hilbert space of Sobolev type, is found to be a convenient state space for the dynamics of forward and futures term structures. The monograph provides a classification of important operators in this space, covering covariance operators and the stochastic modeling of volatility term structures, including the Samuelson effect. Fourier methods are employed to price many derivatives of interest in energy, power, and commodity markets, and sensitivity 'delta' expressions can be derived. Additionally, the monograph covers forward curve smoothing, the connection between forwards with fixed delivery and delivery period, as well as the classical theory of forward and futures pricing. This monograph will appeal to researchers and graduate students interested in mathematical finance and stochastic analysis applied in the challenging markets of energy, power, and commodities. Practitioners seeking sophisticated yet flexible and analytically tractable risk models will also find it valuable.
Author: Craig Pirrong
Publisher: Cambridge University Press
ISBN: 1139501976
Category : Business & Economics
Languages : en
Pages : 238
Get Book Here
Book Description
Commodities have become an important component of many investors' portfolios and the focus of much political controversy over the past decade. This book utilizes structural models to provide a better understanding of how commodities' prices behave and what drives them. It exploits differences across commodities and examines a variety of predictions of the models to identify where they work and where they fail. The findings of the analysis are useful to scholars, traders and policy makers who want to better understand often puzzling - and extreme - movements in the prices of commodities from aluminium to oil to soybeans to zinc.
Author: Lajos Horváth
Publisher:
ISBN:
Category :
Languages : en
Pages : 38
Get Book Here
Book Description
We study forward curves formed from commodity futures prices listed on the Standard and Poor's-Goldman Sachs Commodities Index (S&P GSCI) using recently developed tools in functional time series analysis. Functional tests for stationarity and serial correlation suggest that log-differenced forward curves may be generally considered as stationary and conditionally heteroscedastic sequences of functions. Several functional methods for forecasting forward curves that more accurately reflect the time to expiry of contracts are developed, and we found that these typically outperformed their multivariate counterparts, with the best among them using the method of predictive factors introduced by Kargin and Onatski (2008).
Author: Ali Nouri Dariani
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
This dissertation addresses the gap between commodity price models in economics and finance. The literature in finance often abstracts from market forces and calibrates a stochastic process of price dynamics in order to follow them closely and to price commodity derivatives, most importantly futures contracts. On the other hand models in economics literature often focus on supply, demand and inventories in the long-run. I have developed short-run structural models of commodity prices. These models provide a better description of price dynamics by considering the underlying structure of the economy. Since these models incorporate actions of market participants, they have the advantage of being able to process information signals about probabilities of future supply/demand shocks. The other advantage of short-run structural models is their power in prediction of unobservable states of the economy. Hence, these models provide a better description of forward curves in commodities markets. Recent advances in the theory of storage have been able to associate specific behaviors of commodity prices with inventory dynamics. These models assume producers and consumers who only consider current price, and storage units who consider the whole stochastic process of price in the future. This thesis improves upon these models in two aspects. First, I remove the assumption that the producers and consumers take into account only the current price. For depletable commodities specifically, and for many commodities in general, it is more plausible to assume that the producer has the option to sell the commodity now or postpone the extraction until a future time. The expected future dynamics of prices can change the current production decisions and as a result the current and future prices. My model characterizes the equilibrium of such a system and its comparative dynamics. Second, I introduce an advanced calibration algorithm for this model. Traditional models calibrate their parameters by minimizing their prediction error on aggregate measures such as the average volatility of forward prices. My approach considers the instances of forwards curves and tries to matches each of them. One advantage of this model is the ability to estimate the state of the system (e.g. remaining inventories) as well as the transient and permanent shocks in supply/demand. The theoretical framework of this dissertation shows that actions of rational market participants impose certain price dynamics to the market. Most examples in this work consider crude oil as it is the most traded commodity, with liquid future contracts for longer horizons. Calibration results demonstrate the improvements that short-run structural models could create in describing price dynamics.
Author: Anatoliy Swishchuk
Publisher: Springer
ISBN: 331932408X
Category : Mathematics
Languages : en
Pages : 140
Get Book Here
Book Description
This book is devoted to the history of Change of Time Methods (CTM), the connections of CTM to stochastic volatilities and finance, fundamental aspects of the theory of CTM, basic concepts, and its properties. An emphasis is given on many applications of CTM in financial and energy markets, and the presented numerical examples are based on real data. The change of time method is applied to derive the well-known Black-Scholes formula for European call options, and to derive an explicit option pricing formula for a European call option for a mean-reverting model for commodity prices. Explicit formulas are also derived for variance and volatility swaps for financial markets with a stochastic volatility following a classical and delayed Heston model. The CTM is applied to price financial and energy derivatives for one-factor and multi-factor alpha-stable Levy-based models. Readers should have a basic knowledge of probability and statistics, and some familiarity with stochastic processes, such as Brownian motion, Levy process and martingale.
Author: Helyette Geman
Publisher: John Wiley & Sons
ISBN: 0470687738
Category : Business & Economics
Languages : en
Pages : 479
Get Book Here
Book Description
The last few years have been a watershed for the commodities, cash and derivatives industry. New regulations and products have led to an explosion in the commodities markets, creating a new asset for investors that includes hedge funds as well as University endowments, and has resulted in a spectacular growth in spot and derivative trading. This book covers hard and soft commodities (energy, agriculture and metals) and analyses: Economic and geopolitical issues in commodities markets Commodity price and volume risk Stochastic modelling of commodity spot prices and forward curves Real options valuation and hedging of physical assets in the energy industry It is required reading for energy companies and utilities practitioners, commodity cash and derivatives traders in investment banks, the Agrifood business, Commodity Trading Advisors (CTAs) and Hedge Funds. In Commodities and Commodity Derivatives, Hélyette Geman shows her powerful command of the subject by combining a rigorous development of its mathematical modelling with a compact institutional presentation of the arcane characteristics of commodities that makes the complex analysis of commodities derivative securities accessible to both the academic and practitioner who wants a deep foundation and a breadth of different market applications. It is destined to be a "must have" on the subject.” —Robert Merton, Professor, Harvard Business School "A marvelously comprehensive book of interest to academics and practitioners alike, by one of the world's foremost experts in the field." —Oldrich Vasicek, founder, KMV
Author: Fred Espen Benth
Publisher: World Scientific
ISBN: 981281230X
Category : Business & Economics
Languages : en
Pages : 352
Get Book Here
Book Description
The markets for electricity, gas and temperature have distinctive features, which provide the focus for countless studies. For instance, electricity and gas prices may soar several magnitudes above their normal levels within a short time due to imbalances in supply and demand, yielding what is known as spikes in the spot prices. The markets are also largely influenced by seasons, since power demand for heating and cooling varies over the year. The incompleteness of the markets, due to nonstorability of electricity and temperature as well as limited storage capacity of gas, makes spot-forward hedging impossible. Moreover, futures contracts are typically settled over a time period rather than at a fixed date. All these aspects of the markets create new challenges when analyzing price dynamics of spot, futures and other derivatives.This book provides a concise and rigorous treatment on the stochastic modeling of energy markets. Ornstein?Uhlenbeck processes are described as the basic modeling tool for spot price dynamics, where innovations are driven by time-inhomogeneous jump processes. Temperature futures are studied based on a continuous higher-order autoregressive model for the temperature dynamics. The theory presented here pays special attention to the seasonality of volatility and the Samuelson effect. Empirical studies using data from electricity, temperature and gas markets are given to link theory to practice.
Author: Paul D. Sclavounos
Publisher:
ISBN:
Category :
Languages : en
Pages : 126
Get Book Here
Book Description
An arbitrage free multi-factor model is developed of the correlated forward curves of the crude oil, gasoline, heating oil and tanker shipping markets. Futures contracts trading on public exchanges are used as the primary underlying securities for the development of a multi-factor Gaussian Heath-Jarrow-Morton (HJM) model for the dynamic evolution of the correlated forward curves. An intra- and inter-commodity Principal Component Analysis (PCA) is carried out in order to isolate seasonality and identify a small number of independent factors driving each commodity market. The cross-commodity correlation of the factors is estimated by a two step PCA. The factor volatilities and cross-commodity factor correlations are studied in order to identify stable parametric models, heteroskedasticity and seasonality in the factor volatilities and correlations. The model leads to explicit stochastic differential equations governing the short term and long term factors driving the price of the spot commodity under the risk neutral measure. Risk premia are absent, consistently with HJM arbitrage free framework, as they are imbedded in the factor volatilities and correlations estimated by the PCA. The use of the model is described for the pricing of derivatives written on inter- and intra-commodity futures spreads, Asian options, the valuation and hedging of energy and shipping assets, the fuel efficient navigation of shipping fleets and use in corporate risk management.
Author: Takatoshi Ito
Publisher: University of Chicago Press
ISBN: 0226386899
Category : Business & Economics
Languages : en
Pages : 346
Get Book Here
Book Description
Fluctuations of commodity prices, most notably of oil, capture considerable attention and have been tied to important economic effects. This book advances our understanding of the consequences of these fluctuations, providing both general analysis and a particular focus on the countries of the Pacific Rim.
