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Stochastic Modeling and Pricing of Energy Markets’ Contracts with Local Stochastic Delayed and Jumped Volatilities

In: HANDBOOK OF ENERGY FINANCE Theories, Practices and Simulations

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  • Anatoliy Swishchuk

Abstract

In this Chapter, we concentrate on stochastic modeling and pricing of energy markets’ contracts for stochastic volatilities with delay and jumps. Our model of stochastic volatility exhibits jumps and also past-dependence: the behavior of a stock price right after a given time t not only depends on the situation at t, but also on the whole past (history) of the process S(t) up to time t. The spot price process S(t) is modeled by the Ornstein–Uhlenbeck (OU) process driven by independent increments process. The basic products in these markets are spot, futures and forward contracts and options written on these. We study forwards and swaps. A numerical example is presented for stochastic volatility with delay using the Henry Hub daily natural gas data (1997–2011).

Suggested Citation

  • Anatoliy Swishchuk, 2020. "Stochastic Modeling and Pricing of Energy Markets’ Contracts with Local Stochastic Delayed and Jumped Volatilities," World Scientific Book Chapters, in: Stéphane Goutte & Duc Khuong Nguyen (ed.), HANDBOOK OF ENERGY FINANCE Theories, Practices and Simulations, chapter 11, pages 247-266, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813278387_0011
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    More about this item

    Keywords

    Energy Finance; Financial and Economic Modeling; Volatility; Forecasting; Quantitative Finance; Energy Markets;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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