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Calibration of the multifactor HJM model for energy market

Ewa Broszkiewicz-Suwaj and Aleksander Weron

No HSC/05/03, HSC Research Reports from Hugo Steinhaus Center, Wroclaw University of Science and Technology

Abstract: The purpose of this paper is to show that using the toolkit of interest rate theory, already well known in financial engineering as the HJM model [D. Heath, R. Jarrow, A. Morton, Econometrica 60, 77 (1992)], it is possible to derive explicite option pricing formula and calibrate the theoretical model to the empirical electricity market. The analysis is illustrated by numerical cases from the European Energy Exchange (EEX) in Leipzig. The multi-factor versus one-factor HJM models are compared.

Keywords: Electricity market; HJM model; calibration; option pricing (search for similar items in EconPapers)
JEL-codes: G13 Q40 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2005
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Published in Acta Physica Polonica B Vol. 37, No 5 (2006) 1455-1466.

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