This paper presents a new modelling framework for day–ahead electricity prices based on multivariate Lévy semistationary (MLSS) processes. Day–ahead prices specify the prices for electricity delivered over certain time windows on the next day and are determined in a daily auction. Since...

We analyze the high-frequency dynamics of S&P 500 equity-index option prices by constructing an assortment of implied volatility measures. This allows us to infer the underlying fine structure behind the innovations in the latent state variables driving the movements of the volatility surface....

Risk premia between spot and forward prices play a key role in energy markets. This paper derives analytic expressions for such risk premia when spot prices are modelled by Lévy semistationary processes. While the relation between spot and forward prices can be derived using classical...

Motivated by the construction of the Itô stochastic integral, we consider a step function method to discretize and simulate volatility modulated Lévy semistationary processes. Moreover, we assess the accuracy of the method with a particular focus on integrating kernels with a singularity at...

We introduce tractable models for commodity derivatives pricing with inventory and volatility effects, and illustrate with applications to the oil market. We contribute to the existing literature in several respects. First, whereas the previous literature uses futures data for investigating the...

We study the risk premium and leverage effect in the S&P500 market using the stochastic volatility-in-mean model of Barndor¤-Nielsen & Shephard (2001). The Merton (1973, 1980) equilibrium asset pricing condition linking the conditional mean and conditional variance of discrete time returns is...

State-of-the-art stochastic volatility models generate a "volatility smirk" that explains why out-of-the-money index puts have high prices relative to the Black-Scholes benchmark. These models also adequately explain how the volatility smirk moves up and down in response to changes in risk....

The Pearson diffusions is a flexible class of diffusions defined by having linear drift and quadratic squared diffusion coefficient. It is demonstrated that for this class explicit statistical inference is feasible. Explicit optimal martingale estimating func- tions are found, and the...

Recent research has focused on modelling asset prices by Itô semimartingales. In such a modelling framework, the quadratic variation consists of a continuous and a jump component. This paper is about inference on the jump part of the quadratic variation, which can be estimated by the difference...

This paper studies the effect of time–inhomogeneous jumps and leverage type effects on realised variance calculations when the logarithmic asset price is given by a Lévy–driven stochastic volatility model. In such a model, the realised variance is an inconsistent estimator of the integrated...