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Calibration of One- and Two-Factor Models For Valuation of Energy Multi-Asset Derivative Contracts

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  • Josh Gray
  • Konstantin Palamarchuk

Abstract

We study historical calibration of one- and two-factor models that are known to describe relatively well the dynamics of energy underlyings such as spot and index natural gas or oil prices at different physical locations or regional power prices. We take into account uneven frequency of data due to weekends, holidays, and possible missing data. We study the case when several one- and two-factor models are used in the joint model with correlated model factors and present examples of joint calibration for daily natural gas prices at several locations in the US and for regional hourly power prices.

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  • Josh Gray & Konstantin Palamarchuk, 2010. "Calibration of One- and Two-Factor Models For Valuation of Energy Multi-Asset Derivative Contracts," Papers 1011.4547, arXiv.org.
    • Handle: RePEc:arx:papers:1011.4547
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    References listed on IDEAS

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    1. Mihaela Manoliu, 2004. "Storage Options Valuation Using Multilevel Trees And Calendar Spreads," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 7(04), pages 425-464.
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    Cited by:

    1. Patrick Hénaff & Ismail Laachir & Francesco Russo, 2018. "Gas Storage Valuation and Hedging: A Quantification of Model Risk," IJFS, MDPI, vol. 6(1), pages 1-27, March.
    2. Patrick Henaff & Ismail Laachir & Francesco Russo, 2013. "Gas storage valuation and hedging. A quantification of the model risk," Papers 1312.3789, arXiv.org.

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