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Forward Prices As Functionals Of The Spot Path In Commodity Markets Modeled By Levy Semistationary Processes

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  • FRED ESPEN BENTH

    (Department of Mathematics, University of Oslo, P.O. Box 1053, Blindern, N–0316 Oslo, Norway)

  • SARA ANA SOLANILLA BLANCO

    (Department of Mathematics, University of Oslo, P.O. Box 1053, Blindern, N–0316 Oslo, Norway)

Abstract

We show that the forward price can be represented as a functional of the spot price path in the case of Lévy semistationary (LSS) models for the spot dynamics. The functional is a weighted average of the historical spot price in general, and is derived by means of the Laplace transform. For the special cases of continuous-time autoregressive (CAR) moving average and Gamma-LSS processes for the spot dynamics, we are able to produce an analytical weight function. Both classes of processes are of interest in markets for power, weather and shipping, and we provide a discussion of the results based on numerical examples.

Suggested Citation

  • Fred Espen Benth & Sara Ana Solanilla Blanco, 2015. "Forward Prices As Functionals Of The Spot Path In Commodity Markets Modeled By Levy Semistationary Processes," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 18(02), pages 1-35.
    • Handle: RePEc:wsi:ijtafx:v:18:y:2015:i:02:n:s0219024915500107
    DOI: 10.1142/S0219024915500107
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    References listed on IDEAS

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    1. repec:dau:papers:123456789/607 is not listed on IDEAS
    2. Fred Espen Benth & Jūratė Šaltytė Benth, 2012. "Modeling and Pricing in Financial Markets for Weather Derivatives," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 8457, January.
    3. Amir H. Alizadeh & Nikos K. Nomikos, 2009. "Shipping Derivatives and Risk Management," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-23580-9.
    4. Fred Espen Benth & Jūratė Šaltytė Benth, 2012. "Financial markets for weather," World Scientific Book Chapters, in: Modeling and Pricing in Financial Markets for Weather Derivatives, chapter 1, pages 1-13, World Scientific Publishing Co. Pte. Ltd..
    5. Helyette Geman, 2005. "Commodities and Commodity Derivatives. Modeling and Pricing for Agriculturals, Metals and Energy," Post-Print halshs-00144182, HAL.
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    Cited by:

    1. Benth, Fred Espen & Koekebakker, Steen, 2015. "Pricing of forwards and other derivatives in cointegrated commodity markets," Energy Economics, Elsevier, vol. 52(PA), pages 104-117.

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