Modelling Electricity Futures by Ambit Fields
- 1 September 2014
- journal article
- general applied-probability
- Published by Cambridge University Press (CUP) in Advances in Applied Probability
- Vol. 46 (03) , 719-745
Abstract
In this paper we propose a new modelling framework for electricity futures markets based on so-calledambit fields. The new model can capture many of the stylised facts observed in electricity futures and is highly analytically tractable. We discuss martingale conditions, option pricing, and change of measure within the new model class. Also, we study the corresponding model for the spot price, which is implied by the new futures model, and show that, under certain regularity conditions, the implied spot price can be represented in law as a volatility modulated Volterra process.Keywords
This publication has 34 references indexed in Scilit:
- Ambit Processes and Stochastic Partial Differential Equations2011
- Asymptotic Pricing of Commodity Derivatives using Stochastic Volatility Spot ModelsApplied Mathematical Finance, 2008
- A Stochastic Differential Equation Framework for the Timewise Dynamics of Turbulent VelocitiesTheory of Probability & Its Applications, 2008
- Ambit Processes; with Applications to Turbulence and Tumour Growth2007
- Pricing electricity risk by interest rate methodsQuantitative Finance, 2005
- Electricity Prices and Power Derivatives: Evidence from the Nordic Power ExchangeReview of Derivatives Research, 2002
- Lévy-Driven Carma ProcessesAnnals of the Institute of Statistical Mathematics, 2001
- The Dynamics of the Forward Interest Rate Curve with Stochastic String ShocksThe Review of Financial Studies, 2001
- Bond Pricing and the Term Structure of Interest Rates: A New Methodology for Contingent Claims ValuationEconometrica, 1992
- Spectral representations of infinitely divisible processesProbability Theory and Related Fields, 1989