Modelling Energy Spot Prices : 'Empirical Evidence from Nymex'
The aim of this paper is to investigate the behaviour of the spot prices of eight of the most important energy markets that trade futures contracts on NYMEX. We model the energy spot prices with a Mean Reversion (MR) and a Mean Reversion Jump Diffusion (MRJD) specification for the returns' series, and a GARCH and EGARCH specification for the variance series. We modify the commonly used MRJD model in order to include in the modelling procedure all the information that we get from the distribution analysis of the markets, like the frequency and probability of jump occurrence, the different speed of mean reversion after a jump, and most importantly the jump's direction. Then we compare different modelling variations of the aforementioned specifications using robust estimation procedures, after applying Monte Carlo simulations for each one. The relative goodness of fit for the various models is compared with three quantitative measures (root-mean-square simulation error, root-mean-square percent simulation error, and Theil's inequality coefficient) and one qualitative (graphical comparison of the simulated model prices and the log returns with the actual data, and their distributions). In general we find that the addition of the GARCH and EGARCH specifications for the volatility process improves the fit for most energy markets, and we can get to the conclusion that the models are generally consistent with each other for all the energy markets. The results not only have important implications for better pricing of the relevant futures and option contracts on each underlying spot market, but could also lead to improved VaR and Real Options calculations
Year of publication: |
2009
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Authors: | Andriosopoulos, Kostas D. ; Nomikos, Nikos K. |
Publisher: |
[S.l.] : SSRN |
Description of contents: | Abstract [papers.ssrn.com] |
Saved in:
Extent: | 1 Online-Ressource |
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Type of publication: | Book / Working Paper |
Language: | English |
Notes: | Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments November 1, 2008 erstellt Volltext nicht verfügbar |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10014209570
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