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Calibration of the multifactor HJM model for energy market


  • Ewa Broszkiewicz-Suwaj
  • Aleksander Weron


The 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.

Suggested Citation

  • Ewa Broszkiewicz-Suwaj & Aleksander Weron, 2005. "Calibration of the multifactor HJM model for energy market," HSC Research Reports HSC/05/03, Hugo Steinhaus Center, Wroclaw University of Technology.
  • Handle: RePEc:wuu:wpaper:hsc0503

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    References listed on IDEAS

    1. Anna Chernobai & Krzysztof Burnecki & Svetlozar Rachev & Stefan Trueck & Rafal Weron, 2005. "Modeling catastrophe claims with left-truncated severity distributions (extended version)," HSC Research Reports HSC/05/01, Hugo Steinhaus Center, Wroclaw University of Technology.
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    Cited by:

    1. Joanna Janczura & Aleksander Weron, 2008. "Modelling energy forward prices," HSC Research Reports HSC/08/03, Hugo Steinhaus Center, Wroclaw University of Technology.

    More about this item


    Electricity market; HJM model; calibration; option pricing;

    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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