Representation of infinite-dimensional forward price models in commodity markets

DOI10.1007/S40304-014-0030-1zbMATH Open1322.60100arXiv1403.4111OpenAlexW2142661098MaRDI QIDQ403550FDOQ403550

Authors: Paul Krühner, Fred Espen Benth 

Publication date: 29 August 2014

Published in: Communications in Mathematics and Statistics (Search for Journal in Brave)

Abstract: We study the forward price dynamics in commodity markets realized as a process with values in a Hilbert space of absolutely continuous functions defined by Filipovi'c. The forward dynamics are defined as the mild solution of a certain stochastic partial differential equation driven by an infinite dimensional L'evy process. It is shown that the associated spot price dynamics can be expressed as a sum of Ornstein-Uhlenbeck processes, or more generally, as a sum of certain stationary processes. These results link the possibly infinite dimensional forward dynamics to classical commodity spot models. We continue with a detailed analysis of multiplication and integral operators on the Hilbert spaces and show that Hilbert-Schmidt operators are essentially integral operators. The covariance operator of the L'evy process driving the forward dynamics and the diffusion term can both be specified in terms of such operators, and we analyse in several examples the consequences on model dynamics and their probabilistic properties. Also, we represent the forward price for contracts delivering over a period in terms of an integral operator, a case being relevant for power and gas markets. In several examples we reduce our general model to existing commodity spot and forward dynamics.

Full work available at URL: https://arxiv.org/abs/1403.4111

Recommendations

• Approximation of forward curve models in commodity markets with arbitrage-free finite-dimensional models
• ON FINITE DIMENSIONAL REALIZATIONS FOR THE TERM STRUCTURE OF FUTURES PRICES
• Finite dimensional Markovian realizations for forward price term structure models
• Forward prices as functionals of the spot path in commodity markets modeled by Lévy semistationary processes
• An equilibrium model for spot and forward prices of commodities
• Stochastic Models for Prices Dynamics in Energy and Commodity Markets
• Derivatives pricing in energy markets: an infinite-dimensional approach
• The forward dynamics in energy markets – infinite-dimensional modelling and simulation
• MODELING TERM STRUCTURE DYNAMICS: AN INFINITE DIMENSIONAL APPROACH
• Asymptotic Pricing of Commodity Derivatives using Stochastic Volatility Spot Models

zbMATH Keywords

[https://portal.mardi4nfdi.de/w/index.php?title=+Special%3ASearch&search=L%EF%BF%BD%EF%BF%BDvy+process&go=Go L��vy process]Hilbert spaceOrnstein-Uhlenbeck processesstationary processesintegral operatorsstochastic partial differential equationHilbert-Schmidt operatorscommodity marketsforward price modelsHeath-Jarrow-Morton approachinfinite-dimensional stochastic processes

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Stochastic partial differential equations (aspects of stochastic analysis) (60H15) Stationary stochastic processes (60G10) Sobolev spaces and other spaces of ``smooth functions, embedding theorems, trace theorems (46E35) Financial applications of other theories (91G80) Linear operators belonging to operator ideals (nuclear, (p)-summing, in the Schatten-von Neumann classes, etc.) (47B10) Integral operators (47G10)

Cites Work

• Title not available (Why is that?)
• Title not available (Why is that?)
• Bond Pricing and the Term Structure of Interest Rates: A New Methodology for Contingent Claims Valuation
• Title not available (Why is that?)
• Processes of normal inverse Gaussian type
• The fundamental theorem of asset pricing for unbounded stochastic processes
• Classical Fourier Analysis
• Title not available (Why is that?)
• Consistent variance curve models
• A concise course on stochastic partial differential equations
• Interest rate models: an infinite dimensional stochastic analysis perspective
• The stochastic volatility model of Barndorff-Nielsen and shephard in commodity markets
• Stochastic modeling of electricity and related markets.
• Modelling energy spot prices by volatility modulated Lévy-driven Volterra processes
• The Implied Market Price of Weather Risk
• Stochastic Partial Differential Equations with Levy Noise
• Consistency problems for Heath-Jarrow-Morton interest rate models
• Calcul stochastique et problèmes de martingales
• Existence of invariant manifolds for stochastic equations in infinite dimension
• An alternative approach on the existence of affine realizations for HJM term structure models.
• Title not available (Why is that?)
• On a Heath-Jarrow-Morton approach for stock options
• Term structure models driven by Wiener processes and Poisson measures: existence and positivity
• Electricity prices and power derivatives: evidence from the Nordic Power Exchange
• Continuous-time ARMA processes
• Minimal realizations in interest rate models
• A Non‐Gaussian Ornstein–Uhlenbeck Process for Electricity Spot Price Modeling and Derivatives Pricing
• The normal inverse gaussian lévy process: simulation and approximation
• Estimation of stable CARMA models with an application to electricity spot prices
• Tangent Lévy market models
• Regularity of finite-dimensional realizations for evolution equations
• Some refinements of existence results for SPDEs driven by Wiener processes and Poisson random measures
• The forward dynamics in energy markets – infinite-dimensional modelling and simulation
• Optimal portfolios in commodity futures markets
• Lévy-based spatial-temporal modelling, with applications to turbulence
• Modeling and Pricing in Financial Markets for Weather Derivatives
• Integrability of multivariate subordinated Lévy processes in Hilbert space
• A theory of bond portfolios

Cited In (26)

• Hilbert Space Models Commodity Exchanges
• ON FINITE DIMENSIONAL REALIZATIONS FOR THE TERM STRUCTURE OF FUTURES PRICES
• A feasible central limit theorem for realised covariation of SPDEs in the context of functional data
• The forward dynamics in energy markets – infinite-dimensional modelling and simulation
• Measure-valued affine and polynomial diffusions
• Affine pure-jump processes on positive Hilbert-Schmidt operators
• Cointegration in continuous time for factor models
• The Heston stochastic volatility model in Hilbert space
• Robustness of Hilbert space-valued stochastic volatility models
• Pricing options on flow forwards by neural networks in a Hilbert space
• A Barndorff-Nielsen and Shephard model with leverage in Hilbert space for commodity forward markets
• Stationary covariance regime for affine stochastic covariance models in Hilbert spaces
• Infinite-dimensional polynomial processes
• Infinite-dimensional Wishart processes
• Ornstein-Uhlenbeck processes in Hilbert space with non-Gaussian stochastic volatility
• Invariant cones for jump-diffusions in infinite dimensions
• Title not available (Why is that?)
• Derivatives Pricing in Energy Markets: An Infinite-Dimensional Approach
• Sensitivity analysis in the infinite dimensional Heston model
• Approximation of forward curve models in commodity markets with arbitrage-free finite-dimensional models
• Closed-form solutions via the invariant approach for one-factor commodity models
• A weak law of large numbers for realised covariation in a Hilbert space setting
• Infinite dimensional pathwise Volterra processes driven by Gaussian noise -- probabilistic properties and applications --
• Forward Prices in Markets Driven by Continuous-time Autoregressive Processes
• An infinite‐dimensional affine stochastic volatility model
• Independent increment processes: a multilinearity preserving property

This page was built for publication: Representation of infinite-dimensional forward price models in commodity markets

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q403550)