A Self-Consistent Model for the Forward Price Dynamics
AbstractWe consider mean-reverting stochastic processes and build a self- consistent model for forward price dynamics and their applications in power industries. This model with stochastic volatility of the forward price is built using the ideas and equations of stochastic differential geometry in order to close the system of equations for the forward price and its volatility. Stationary distributions for the forward price volatility are found analytically as well as the forward price curves in the one factor case. We consider two models for regular forward price volatility. 1)Pure exponential two parameter model with zero asymptotic. 2)Three parameter exponential model with non-zero asymptotic. The first model is a toy one although it can be used in the case of long terms, the second one is quite reliable for short terms. Those models will also play a role of initial conditions for a stochastic process described forward price volatility. We compare our results with those known from the literature.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by EconWPA in its series Econometrics with number 0308005.
Length: 25 pages
Date of creation: 26 Aug 2003
Date of revision:
Note: Type of Document - Word; prepared on Word file; to print on HP LaserJet; pages: 25 ; figures: included 6 figures. Word for Windows document submitted via ftp
Contact details of provider:
Web page: http://126.96.36.199
Forward price; volatility; stochastic; mean-reverting process;
Find related papers by JEL classification:
- C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
- C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
- C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
- C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.