Jumps in Energy Commodity Markets

Neil Wilmot and Charles Mason

Chapter 9 in Handbook of Energy Finance:Theories, Practices and Simulations, 2020, pp 215-229 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This chapter is concerned with the statistical behavior of energy commodity prices. A particularly salient feature of many commodity markets is the unexpectedly rapid changes — or jumps — that result from the arrival of new information. Such a process would contradict the view that energy commodity prices follow a geometric Brownian motion (GBM) process (i.e. log returns are normally distributed). That is, assuming a GBM process for the data-generating mechanism would be insufficient to capture the true dynamics of energy commodity markets. The discontinuous arrival of information necessitates a stochastic process that incorporates this feature, and as such, Jump processes have become an important tool in the analysis of energy markets. While such models allow for multiple jumps in a period, the jump intensity is assumed to be constant over time — a questionable assumption given the dynamics of such energy markets. The autoregressive conditional jump intensity (ARJI) model of Chan and Maheu [2002],which allows for a time-varying jump intensity, is applied to important energy commodity markets. The results indicate the importance of incorporating time-varying jump intensities in energy markets.

Keywords: Energy Finance; Financial and Economic Modeling; Volatility; Forecasting; Quantitative Finance; Energy Markets (search for similar items in EconPapers)
JEL-codes: G20 G32 Q40 (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.worldscientific.com/doi/pdf/10.1142/9789813278387_0009 (application/pdf)
https://www.worldscientific.com/doi/abs/10.1142/9789813278387_0009 (text/html)
Ebook Access is available upon purchase.

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:wschap:9789813278387_0009

Ordering information: This item can be ordered from

Access Statistics for this chapter

More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().