Diversification of Spot Price of the Korean Allowance Unit based on the Term Structure

In this paper, we generalize the approach of Hinz & Wilhelm (2006), Pricing flow commodity derivatives using fixed income market techniques. International Journal of Theoretical and Applied Finance 9, 1299–1321, replacing in the dynamics of the asset prices the Brownian motion by a more general Lévy process, also taking into account the occurrence of spikes. In particular, we reduce the modeling of an electricity futures market to the modeling of a Lévy bond market with an additional risky asset. This allows to employ well established techniques from interest rate term structure modeling. We then examine Markovianity of the induced electricity spot price, an important property when it comes to option pricing. We show that the considered method combined with the Fourier transform techniques provides semi analytic pricing formulas for European electricity options. Finally, we consider the pricing of path dependent derivatives such as electricity swing options.

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ON FINITE DIMENSIONAL REALIZATIONS FOR THE TERM STRUCTURE OF FUTURES PRICES

International Journal of Theoretical and Applied Finance ◽

10.1142/s0219024906003639 ◽

2006 ◽

Vol 09 (03) ◽

pp. 281-314 ◽

Cited By ~ 11

Author(s):

TOMAS BJÖRK ◽

MAGNUS BLIX ◽

CAMILLA LANDÉN

Keyword(s):

Term Structure ◽

State Space Model ◽

Sufficient Conditions ◽

Algebraic Approach ◽

Necessary And Sufficient Conditions ◽

Spot Price ◽

Futures Prices ◽

Finite Dimensional ◽

Futures Price ◽

Necessary And Sufficient

We consider HJM type models for the term structure of futures prices, where the volatility is allowed to be an arbitrary smooth functional of the present futures price curve. Using a Lie algebraic approach we investigate when the infinite dimensional futures price process can be realized by a finite dimensional Markovian state space model, and we give general necessary and sufficient conditions, in terms of the volatility structure, for the existence of a finite dimensional realization. We study a number of concrete applications including a recently developed model for gas futures. In particular we provide necessary and sufficient conditions for when the induced spot price is a Markov process. In particular we can prove that the only HJM type futures price models with spot price dependent volatility structures which generically possess a spot price realization are the affine ones. These models are thus the only generic spot price models from a futures price term structure point of view.

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Recent movement of oil prices and future scenarios

Nova Economia ◽

10.1590/0103-6351/4159 ◽

2019 ◽

Vol 29 (1) ◽

pp. 223-248

Author(s):

Fernando Antonio Lucena Aiube ◽

Ariel Levy

Keyword(s):

Term Structure ◽

Oil Prices ◽

Spot Price ◽

Oil Companies ◽

Capital Budget ◽

Recent Movement ◽

Crude Oil Prices ◽

Government Planning ◽

Log Normal ◽

Near Future

Abstract The recent movement of oil prices has brought many forecasts about what is coming in the near future. This is natural since the plunge in prices has been dramatic after 2014 and oil is an essential source of energy worldwide. This paper examines the probabilities of spot price scenarios. We model prices through stochastic processes focusing on the Schwartz-Smith model. The calibration is based on the term structure of future prices. Since the conditional distribution is log-normal we define the probability of a certain value of the spot price in a given time horizon. We found that the recovery of crude oil prices will be slow in the next four years. Moreover, the scenario of prices under US$ 20/barrel has the same probability as being greater than US$ 50/barrel. The methodology has many applications, mainly for government planning and for oil companies in their capital budget decisions.

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The Jump Size Distribution of the Commodity Spot Price and Its Effect on Futures and Option Prices

Abstract and Applied Analysis ◽

10.1155/2017/3286549 ◽

2017 ◽

Vol 2017 ◽

pp. 1-10 ◽

Cited By ~ 2

Author(s):

L. Gómez-Valle ◽

Z. Habibilashkary ◽

J. Martínez-Rodríguez

Keyword(s):

New York ◽

Natural Gas ◽

Size Distribution ◽

Exponential Distribution ◽

Diffusion Model ◽

Term Structure ◽

Risk Premia ◽

Spot Price ◽

Jump Size ◽

Jump Diffusion Model

In this paper, we analyze the role of the jump size distribution in the US natural gas prices when valuing natural gas futures traded at New York Mercantile Exchange (NYMEX) and we observe that a jump-diffusion model always provides lower errors than a diffusion model. Moreover, we also show that although the Normal distribution offers lower errors for short maturities, the Exponential distribution is quite accurate for long maturities. We also price natural gas options and we see that, in general, the model with the Normal jump size distribution underprices these options with respect to the Exponential distribution. Finally, we obtain the futures risk premia in both cases and we observe that for long maturities the term structure of the risk premia is negative. Moreover, the Exponential distribution provides the highest premia in absolute value.

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