Calibration and filtering for multi factor commodity models with seasonality: incorporating panel data from futures contracts

DOI10.1007/S11009-012-9286-7MaRDI QIDQ2513643zbMATHOpenAlexFDO

Authors Gareth W. Peters, Mark Briers, Pavel V. Shevchenko, Arnaud Doucet

Publication date 28 January 2015

Published in Methodology and Computing in Applied Probability (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1105.5850

zbMATH Keywords

particle filteradaptive Markov chain Monte Carlostochastic volatilityRao-Blackwellizationspot pricecommoditymilstein

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Applications of statistics to actuarial sciences and financial mathematics (62P05) Numerical methods (including Monte Carlo methods) (91G60) Applications of stochastic analysis (to PDEs, etc.) (60H30) Numerical solutions to stochastic differential and integral equations (65C30)

Abstract: We examine a general multi-factor model for commodity spot prices and futures valuation. We extend the multi-factor long-short model in Schwartz and Smith (2000) and Yan (2002) in two important aspects: firstly we allow for both the long and short term dynamic factors to be mean reverting incorporating stochastic volatility factors and secondly we develop an additive structural seasonality model. Then a Milstein discretized non-linear stochastic volatility state space representation for the model is developed which allows for futures and options contracts in the observation equation. We then develop numerical methodology based on an advanced Sequential Monte Carlo algorithm utilising Particle Markov chain Monte Carlo to perform calibration of the model jointly with the filtering of the latent processes for the long-short dynamics and volatility factors. In this regard we explore and develop a novel methodology based on an adaptive Rao-Blackwellised version of the Particle Markov chain Monte Carlo methodology. In doing this we deal accurately with the non-linearities in the state-space model which are therefore introduced into the filtering framework. We perform analysis on synthetic and real data for oil commodities.

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Cited in

(9)

• On the calibration of the Schwartz two-factor model to WTI crude oil options and the extended Kalman filter
• On the parameter estimation in the Schwartz-Smith's two-factor model
• Calibration of a multifactor model for the forward markets of several commodities
• Multidimensional calibration of crude oil and refined products via semidefinite programming techniques
• Markov models for commodity futures: theory and practice
• On correlated measurement errors in the Schwartz-Smith two-factor model
• Forecasting commodity futures returns with stepwise regressions: do commodity-specific factors help?
• Multi-factor polynomial diffusion models and inter-temporal futures dynamics
• On autoregressive measurement errors in a two-factor model

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