Calibration of the multifactor HJM model for energy market
AbstractThe purpose of this paper is to show that using the toolkit of interest rate theory, already well known in financial engineering as the HJM model [D. Heath, R. Jarrow, A. Morton, Econometrica 60, 77 (1992)], it is possible to derive explicite option pricing formula and calibrate the theoretical model to the empirical electricity market. The analysis is illustrated by numerical cases from the European Energy Exchange (EEX) in Leipzig. The multi-factor versus one-factor HJM models are compared.
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Bibliographic InfoPaper provided by Hugo Steinhaus Center, Wroclaw University of Technology in its series HSC Research Reports with number HSC/05/03.
Length: 14 pages
Date of creation: 2005
Date of revision:
Publication status: Published in Acta Physica Polonica B Vol. 37, No 5 (2006) 1455-1466.
Electricity market; HJM model; calibration; option pricing;
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
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