Exact Simulation of Variance Gamma related OU processes: Application to the Pricing of Energy Derivatives

Piergiacomo Sabino

Papers from arXiv.org

Abstract: In this study we define a three-step procedure to relate the self-decomposability of the stationary law of a generalized Ornstein-Uhlenbeck process to the law of the increments of such processes. Based on this procedure and the results of Qu et al. (2019), we derive the exact simulation, without numerical inversion, of the skeleton of a Variance Gamma, and of a symmetric Variance Gamma driven Ornstein-Uhlenbeck process. Extensive numerical experiments are reported to demonstrate the accuracy and efficiency of our algorithms. These results are instrumental to simulate the spot price dynamics in energy markets and to price Asian options and gas storages by Monte Carlo simulations in a framework similar to the one discussed in Cummins et al. (2017, 2018).

Date: 2020-04
New Economics Papers: this item is included in nep-cmp and nep-ene
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published in Applied Mathematical Finance,Volume 27, 2020 - Issue 3

Downloads: (external link)
http://arxiv.org/pdf/2004.06786 Latest version (application/pdf)

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:arx:papers:2004.06786

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().