Pricing dynamics of natural gas futures
Energy Economics, 2019, vol. 78, issue C, 91-108
Growth in the natural gas market is pronounced since the shale gas boom. Natural gas has become increasingly important in international trade, especially after the recent financialization in commodity markets. Motivated by the high volatility and time-varying nature in natural gas futures prices, understanding the pricing dynamics of natural gas is essential for risk management. In this paper, we adopt a class of computationally efficient discrete-time pricing models and construct futures dynamics by differentiating three subsamples which represent time-varying market conditions. We find strong evidence of positive jumps in the natural gas market and higher jump intensity in a more volatile period. The dynamic jump intensity model has a better model fit both in-sample and out-of-sample, suggesting time-varying jumps are necessary for pricing natural gas derivatives.
Keywords: Natural gas; Futures; Discrete-time model; Jump (search for similar items in EconPapers)
JEL-codes: G1 G12 G13 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:78:y:2019:i:c:p:91-108
Access Statistics for this article
Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant
More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().