A new energy model to capture the behavior of energy price processes
Owing to the vague fluctuation of energy prices from time to time, a new energy model, which considers both the mean-reverting behavior and the long memory property, is proposed in this paper. Since the problem of estimating parameters, in discrete time for this model, plays a central role in forecast inference, the problem of estimating the unknown parameters has been dealt with for the fractional Ornstein–Uhlenbeck process observed discretely. The asymptotic properties of these estimates are also provided. The numerical simulation results confirm the theoretical analysis and show that our method is effective. To show how to apply our approach in realistic contexts, an empirical study of energy in China, namely Daqing crude oil, is presented. The empirical results seem reasonable when compared to the real data.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Tang, Cheng Yong & Chen, Song Xi, 2009. "Parameter estimation and bias correction for diffusion processes," Journal of Econometrics, Elsevier, vol. 149(1), pages 65-81, April.
- Henghsiu Tsai & K. S. Chan, 2005. "Quasi-Maximum Likelihood Estimation for a Class of Continuous-time Long-memory Processes," Journal of Time Series Analysis, Wiley Blackwell, vol. 26(5), pages 691-713, 09.
- Apostolos Serletis & Periklis Gogas, 2007.
"The North American Natural Gas Liquids Markets are Chaotic,"
World Scientific Book Chapters,
in: Quantitative And Empirical Analysis Of Energy Markets, chapter 17, pages 225-244
World Scientific Publishing Co. Pte. Ltd..
- Apostolos Serletis & Periklis Gogas, 1999. "The North American Natural Gas Liquids Markets are Chaotic," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 83-103.
- Serletis, Apostolos & Gogas, Periklis, 1999. "The North American natural gas liquids markets are chaotic," MPRA Paper 1576, University Library of Munich, Germany.
- Serletis, A. & Gogas, P., 1998. "The North American Natural Gas Liquids Markets are Chaotic," Papers 98-10, Calgary - Department of Economics.
- Eduardo Schwartz & James E. Smith, 2000. "Short-Term Variations and Long-Term Dynamics in Commodity Prices," Management Science, INFORMS, vol. 46(7), pages 893-911, July.
- Stein, Elias M & Stein, Jeremy C, 1991. "Stock Price Distributions with Stochastic Volatility: An Analytic Approach," Review of Financial Studies, Society for Financial Studies, vol. 4(4), pages 727-752.
- Gil-Alana, Luis A. & Loomis, David & Payne, James E., 2010.
"Does energy consumption by the US electric power sector exhibit long memory behavior?,"
Elsevier, vol. 38(11), pages 7512-7518, November.
- Luis A. Gil-Alana & James Payne & David Loomis, 2010. "Does energy consumption by the US electric power secto exhibit long memory behaviour?," Faculty Working Papers 04/10, School of Economics and Business Administration, University of Navarra.
- Xi, Xiaojing & Mamon, Rogemar, 2011. "Parameter estimation of an asset price model driven by a weak hidden Markov chain," Economic Modelling, Elsevier, vol. 28(1-2), pages 36-46, January.
- Haldrup, Niels & Nielsen, Frank S. & Nielsen, Morten Ørregaard, 2010.
"A vector autoregressive model for electricity prices subject to long memory and regime switching,"
Elsevier, vol. 32(5), pages 1044-1058, September.
- Niels Haldrup & Frank S. Nielsen & Morten Ørregaard Nielsen, 2007. "A Vector Autoregressive Model for Electricity Prices Subject to Long Memory and Regime Switching," CREATES Research Papers 2007-29, Department of Economics and Business Economics, Aarhus University.
- Niels Haldrup & Frank S. Nielsen & Morten Ørregaard Nielsen, 2009. "A vector autoregressive model for electricity prices subject to long memory and regime switching," Working Papers 1211, Queen's University, Department of Economics.
- Schlueter, Stephan, 2010. "A long-term/short-term model for daily electricity prices with dynamic volatility," Energy Economics, Elsevier, vol. 32(5), pages 1074-1081, September.
- Elder, John & Serletis, Apostolos, 2008. "Long memory in energy futures prices," Review of Financial Economics, Elsevier, vol. 17(2), pages 146-155.
- Niels Haldrup & Morten O. Nielsen, 2004.
"A Regime Switching Long Memory Model for Electricity Prices,"
Economics Working Papers
2004-2, Department of Economics and Business Economics, Aarhus University.
- Haldrup, Niels & Nielsen, Morten Orregaard, 2006. "A regime switching long memory model for electricity prices," Journal of Econometrics, Elsevier, vol. 135(1-2), pages 349-376.
- Peter F. Craigmile, 2003. "Simulating a class of stationary Gaussian processes using the Davies-Harte algorithm, with application to long memory processes," Journal of Time Series Analysis, Wiley Blackwell, vol. 24(5), pages 505-511, 09.
- Xi, Xiaojing & Mamon, Rogemar, 2011. "Parameter estimation of an asset price model driven by a weak hidden Markov chain," Economic Modelling, Elsevier, vol. 28(1), pages 36-46.
- Henghsiu Tsai & K. S. Chan, 2005. "Maximum likelihood estimation of linear continuous time long memory processes with discrete time data," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 67(5), pages 703-716.
- Alexandre Brouste & Marina Kleptsyna, 2010. "Asymptotic properties of MLE for partially observed fractional diffusion system," Statistical Inference for Stochastic Processes, Springer, vol. 13(1), pages 1-13, April.
- M. T. Barlow, 2002. "A Diffusion Model For Electricity Prices," Mathematical Finance, Wiley Blackwell, vol. 12(4), pages 287-298.
- M.L. Kleptsyna & A. Le Breton, 2002. "Statistical Analysis of the Fractional Ornstein–Uhlenbeck Type Process," Statistical Inference for Stochastic Processes, Springer, vol. 5(3), pages 229-248, October.
- William Barnett & Apostolos Serletis & Demitre Serletis, 2005.
"Nonlinear and Complex Dynamics in Real Systems,"
WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS
200517, University of Kansas, Department of Economics, revised Sep 2005.
- Pestana Barros, Carlos & Gil-Alana, Luis A. & Payne, James E., 2012. "Evidence of long memory behavior in U.S. renewable energy consumption," Energy Policy, Elsevier, vol. 41(C), pages 822-826.
- Nualart, D. & Ortiz-Latorre, S., 2008. "Central limit theorems for multiple stochastic integrals and Malliavin calculus," Stochastic Processes and their Applications, Elsevier, vol. 118(4), pages 614-628, April.
- Casas, Isabel & Gao, Jiti, 2008.
"Econometric estimation in long-range dependent volatility models: Theory and practice,"
Journal of Econometrics,
Elsevier, vol. 147(1), pages 72-83, November.
- Casas, Isabel & Gao, Jiti, 2006. "Econometric estimation in long-range dependent volatility models: Theory and practice," MPRA Paper 11981, University Library of Munich, Germany, revised Aug 2007.
- Elyasiani, Elyas & Mansur, Iqbal & Odusami, Babatunde, 2011. "Oil price shocks and industry stock returns," Energy Economics, Elsevier, vol. 33(5), pages 966-974, September.
- Le Breton, Alain, 1998. "Filtering and parameter estimation in a simple linear system driven by a fractional Brownian motion," Statistics & Probability Letters, Elsevier, vol. 38(3), pages 263-274, June.
- Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, vol. 5(2), pages 177-188, November.
- Vasicek, Oldrich Alfonso, 1977. "Abstract: An Equilibrium Characterization of the Term Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(04), pages 627-627, November.
- Brennan, Michael J & Schwartz, Eduardo S, 1985. "Evaluating Natural Resource Investments," The Journal of Business, University of Chicago Press, vol. 58(2), pages 135-157, April.
- Lean, Hooi Hooi & Smyth, Russell, 2009. "Long memory in US disaggregated petroleum consumption: Evidence from univariate and multivariate LM tests for fractional integration," Energy Policy, Elsevier, vol. 37(8), pages 3205-3211, August.
- Hu, Yaozhong & Nualart, David, 2010. "Parameter estimation for fractional Ornstein-Uhlenbeck processes," Statistics & Probability Letters, Elsevier, vol. 80(11-12), pages 1030-1038, June.
- Wang, Yudong & Wu, Chongfeng & Wei, Yu, 2011. "Can GARCH-class models capture long memory in WTI crude oil markets?," Economic Modelling, Elsevier, vol. 28(3), pages 921-927, May.
- Chow, Gregory C., 1984. "Maximum-likelihood estimation of misspecified models," Economic Modelling, Elsevier, vol. 1(2), pages 134-138, April.
- Weidong Xu & Hongyi Li & Chongfeng Wu, 2011. "A Robust General Equilibrium Stochastic Volatility Model with Recursive Preference Investors," Annals of Economics and Finance, Society for AEF, vol. 12(2), pages 217-231, November.
- Tabak, Benjamin M. & Cajueiro, Daniel O., 2007. "Are the crude oil markets becoming weakly efficient over time? A test for time-varying long-range dependence in prices and volatility," Energy Economics, Elsevier, vol. 29(1), pages 28-36, January.
- Coeurjolly, Jean-Francois, 2000. "Simulation and identification of the fractional Brownian motion: a bibliographical and comparative study," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 5(i07).
- Xu, Weidong & Wu, Chongfeng & Li, Hongyi, 2011. "Foreign equity option pricing under stochastic volatility model with double jumps," Economic Modelling, Elsevier, vol. 28(4), pages 1857-1863, July.
- Meade, Nigel, 2010. "Oil prices -- Brownian motion or mean reversion? A study using a one year ahead density forecast criterion," Energy Economics, Elsevier, vol. 32(6), pages 1485-1498, November.
- Yacine Ait-Sahalia, 2002. "Maximum Likelihood Estimation of Discretely Sampled Diffusions: A Closed-form Approximation Approach," Econometrica, Econometric Society, vol. 70(1), pages 223-262, January.
- Kang, Sang Hoon & Kang, Sang-Mok & Yoon, Seong-Min, 2009. "Forecasting volatility of crude oil markets," Energy Economics, Elsevier, vol. 31(1), pages 119-125, January.
- Xu, Weidong & Wu, Chongfeng & Li, Hongyi, 2010. "Robust general equilibrium under stochastic volatility model," Finance Research Letters, Elsevier, vol. 7(4), pages 224-231, December.
When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:29:y:2012:i:5:p:1585-1591. See general 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: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.