Modelling energy spot prices by Lévy semistationary processes

Barndorff–Nielsen, Ole E. (), Fred Espen Benth () and Almut E. D. Veraart ()
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Barndorff–Nielsen, Ole E.: Thiele Center, Department of Mathematical Sciences and CREATES, Postal: Ny Munkegade 118, 8000 Aarhus C, Denmark
Fred Espen Benth: Centre of Mathematics for Applications, University of Oslo and Faculty of Economics University of Agder, Postal: P.O. Box 1053, Blindern, N–0316 Oslo, Norway
Authors registered in the RePEc Author Service: Ole E. Barndorff-Nielsen ()

CREATES Research Papers from School of Economics and Management, University of Aarhus

Abstract: This paper introduces a new modelling framework for energy spot prices based on Lévy semistationary processes. Lévy semistationary processes are special cases of the general class of ambit processes. We provide a detailed analysis of the probabilistic properties of such models and we show how they are able to capture many of the stylised facts observed in energy markets. Furthermore, we derive forward prices based on our spot price model. As it turns out, many of the classical spot models can be embedded into our novel modelling framework.

Keywords: Energy markets; forward price; Lévy semistationary process; stochastic integration; spot price (search for similar items in EconPapers)
JEL-codes: C0 C1 C5 G1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-ene, nep-mic and nep-ore
Date: 2010-04-27
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Persistent link: http://EconPapers.repec.org/RePEc:aah:create:2010-18

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