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142. Commodity Forward Curves with Stochastic Time Change
Invited abstract in session MA-57: Modelling commodity markets dynamics, stream Modern Decision Making in Finance and Insurance.
Monday, 8:30-10:00Room: S06 (building: 101)
Authors (first author is the speaker)
| 1. | Maren Diane Schmeck
|
| IMW, Bielefeld University |
Abstract
Using powerful technique of stochastic time change, we introduce a new two-factor commodity price model, where one of the fundamental factors is the activity rate. This factor implicitly introduces stochastic volatility into the model. The model is developed under both physical and risk neutral probability measures, which allows for a wide range of applications
ranging from derivatives pricing to risk management.
We derive forward prices and forward curve evolution within the model’s framework and develop an ingenious calibration procedure, which allows us to filter out the activity rate from daily observed price data. We apply the model to the rich dataset of daily crude oil and natural gas spot and futures prices and demonstrate its versatility and excellent fit to the historical forward curves
Keywords
- Stochastic Models
Status: accepted
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