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Modelling energy spot prices by volatility modulated Lévy-driven Volterra processes. (English) Zbl 1337.60088
This paper introduces a new class of models for spot prices in energy markets. In particular, the authors consider the class of volatility modulated Lévy-driven Volterra (VMLV) processes and its subclass of Lévy semistationary (LSS) processes, and model energy spot prices driven by VMLV and LSS processes. In this framework, deseasonalised spot prices are modeled in stationarity, and the model is flexible enough to include a stochastic volatility component, including jumps and spikes and allowing to capture the so-called “Samuelson effect”. The authors provide a short description of the VMLV and LSS processes in Section 2, while Section 3 is an in-depth study of the proposed model, including a description of the second order structure and no-arbitrage conditions. The fourth section focuses on the pricing of forward contracts, while the fifth section applies the model to real data and shows its practical relevance.

MSC:
60G51 Processes with independent increments; Lévy processes
60H05 Stochastic integrals
60G48 Generalizations of martingales
91G20 Derivative securities (option pricing, hedging, etc.)
91G80 Financial applications of other theories
Software:
ghyp; QRM
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References:
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