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Modelling electricity forward markets by ambit fields

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 proposes a new modelling framework for electricity forward markets, which is based on ambit fields. The new model can capture many of the stylised facts observed in energy markets. One of the main differences to the traditional models lies in the fact that we do not model the dynamics, but the forward price directly, where we focus on models which are stationary in time. We give a detailed account on the probabilistic properties of the new model and we discuss martingale conditions and change of measure within the new model class. Also, we derive a model for the spot price which is obtained from the forward model through a limiting argument.

Suggested Citation

  • Ole E. Barndorff–Nielsen & Fred Espen Benth & Almut E. D. Veraart, 2010. "Modelling electricity forward markets by ambit fields," CREATES Research Papers 2010-41, Department of Economics and Business Economics, Aarhus University.
  • Handle: RePEc:aah:create:2010-41
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    File URL: ftp://ftp.econ.au.dk/creates/rp/10/rp10_41.pdf
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    Citations

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    Cited by:

    1. Fred Espen Benth & Paul Kruhner, 2014. "Derivatives pricing in energy markets: an infinite dimensional approach," Papers 1412.7943, arXiv.org.
    2. Ole E. Barndorff-Nielsen & Fred Espen Benth & Almut E. D. Veraart, 2013. "Modelling energy spot prices by volatility modulated L\'{e}vy-driven Volterra processes," Papers 1307.6332, arXiv.org.
    3. Schnurr Alexander & Woerner Jeannette H. C., 2011. "Well-balanced Lévy driven Ornstein–Uhlenbeck processes," Statistics & Risk Modeling, De Gruyter, vol. 28(4), pages 343-357, December.
    4. Pakkanen, Mikko S., 2014. "Limit theorems for power variations of ambit fields driven by white noise," Stochastic Processes and their Applications, Elsevier, vol. 124(5), pages 1942-1973.
    5. Kerstin Gärtner & Mark Podolskij, 2014. "On non-standard limits of Brownian semi-stationary," CREATES Research Papers 2014-50, Department of Economics and Business Economics, Aarhus University.

    More about this item

    Keywords

    Electricity markets; forward prices; random fields; ambit fields; stochastic volatility.;

    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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