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Modelling energy spot prices by Lévy semistationary processes

Author

Listed:
  • Ole E. Barndorff–Nielsen

    () (Thiele Center, Department of Mathematical Sciences and CREATES)

  • Fred Espen Benth

    () (Centre of Mathematics for Applications, University of Oslo and Faculty of Economics University of Agder)

  • Almut E. D. Veraart

    () (CREATES, School of Economics and Management Aarhus University)

Abstract

This paper introduces a new modelling framework for energy spot prices based on Lévy semistationary processes. Lévy semistationary processes are special cases of the general class of ambit processes. We provide a detailed analysis of the probabilistic properties of such models and we show how they are able to capture many of the stylised facts observed in energy markets. Furthermore, we derive forward prices based on our spot price model. As it turns out, many of the classical spot models can be embedded into our novel modelling framework.

Suggested Citation

  • Ole E. Barndorff–Nielsen & Fred Espen Benth & Almut E. D. Veraart, 2010. "Modelling energy spot prices by Lévy semistationary processes," CREATES Research Papers 2010-18, Department of Economics and Business Economics, Aarhus University.
  • Handle: RePEc:aah:create:2010-18
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    File URL: ftp://ftp.econ.au.dk/creates/rp/10/rp10_18.pdf
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    References listed on IDEAS

    as
    1. Veraart, Almut E.D., 2010. "Inference For The Jump Part Of Quadratic Variation Of Itô Semimartingales," Econometric Theory, Cambridge University Press, vol. 26(02), pages 331-368, April.
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    Cited by:

    1. Ole E. Barndorff-Nielsen, 2016. "Assessing Gamma kernels and BSS/LSS processes," CREATES Research Papers 2016-09, Department of Economics and Business Economics, Aarhus University.
    2. repec:wsi:ijtafx:v:14:y:2011:i:04:n:s0219024911006747 is not listed on IDEAS

    More about this item

    Keywords

    Energy markets; forward price; Lévy semistationary process; stochastic integration; spot price;

    JEL classification:

    • C0 - Mathematical and Quantitative Methods - - General
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • G1 - Financial Economics - - General Financial Markets

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