Fast Pricing of Energy Derivatives with Mean-reverting Jump-diffusion Processes
Nicola Cufaro Petroni and
Papers from arXiv.org
Most energy and commodity markets exhibit mean-reversion and occasional distinctive price spikes, which results in demand for derivative products which protect the holder against high prices. To this end, in this paper we present exact and fast methodologies for the simulation of the spot price dynamics modeled as the exponential of the sum of an Ornstein-Uhlenbeck and an independent pure jump process, where the latter one is driven by a compound Poisson process with (bilateral) exponentially distributed jumps. These methodologies are finally applied to the pricing of Asian options, gas storages and swings under different combinations of jump-diffusion market models, and the apparent computational advantages of the proposed procedures are emphasized.
Date: 2019-08, Revised 2020-03
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1908.03137
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