ENERGY SPOT PRICE MODELS AND SPREAD OPTIONS PRICING

Samuel Hikspoors () and Sebastian Jaimungal ()
Additional contact information
Samuel Hikspoors: Department of Statistics, University of Toronto, 100 St. George Street, Toronto, Canada M5S 3G3, Canada
Sebastian Jaimungal: Department of Statistics, University of Toronto, 100 St. George Street, Toronto, Canada M5S 3G3, Canada;

International Journal of Theoretical and Applied Finance (IJTAF), 2007, vol. 10, issue 07, 1111-1135

Abstract: In this article, we construct forward price curves and value a class of two asset exchange options for energy commodities. We model the spot prices using an affine two-factor mean-reverting process with and without jumps. Within this modeling framework, we obtain closed form results for the forward prices in terms of elementary functions. Through measure changes induced by the forward price process, we further obtain closed form pricing equations for spread options on the forward prices. For completeness, we address both an Actuarial and a risk-neutral approach to the valuation problem. Finally, we provide a calibration procedure and calibrate our model to the NYMEX Light Sweet Crude Oil spot and futures data, allowing us to extract the implied market prices of risk for this commodity.

Keywords: Energy markets; spread options; multi-factor jump-diffusions; transform methods (search for similar items in EconPapers)
Date: 2007
References: View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0219024907004573
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:ijtafx:v:10:y:2007:i:07:n:s0219024907004573

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0219024907004573

Access Statistics for this article

International Journal of Theoretical and Applied Finance (IJTAF) is currently edited by L P Hughston

More articles in International Journal of Theoretical and Applied Finance (IJTAF) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().