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The stochastic volatility model of Barndorff-Nielsen and shephard in commodity markets. (English) Zbl 1247.91178
The paper investigates the non-Gaussian stochastic volatility model of Barndorff-Nielsen and Shephard for the exponential mean-reversion model of Schwartz proposed for commodity spot prices. It is shown that the log-spot prices possess a stationary distribution defined as a normal variance-mixture model. The model is illustrated for UK gas spot prices. The proposed model is compared to the Heston stochastic volatility model. Explicit forward prices are derived. Although the spot price dynamics has continuous paths, the forward prices will have a jump dynamics, where jumps occur according to changes in the volatility process.

91G20 Derivative securities (option pricing, hedging, etc.)
91G70 Statistical methods; risk measures
Full Text: DOI
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