Exact simulation of variance gamma-related OU processes: application to the pricing of energy derivatives
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Abstract: In this study we define a three-step procedure to relate the self-decomposability of the stationary law of a generalized Ornstein-Uhlenbeck process to the law of the increments of such processes. Based on this procedure and the results of Qu et al. (2019), we derive the exact simulation, without numerical inversion, of the skeleton of a Variance Gamma, and of a symmetric Variance Gamma driven Ornstein-Uhlenbeck process. Extensive numerical experiments are reported to demonstrate the accuracy and efficiency of our algorithms. These results are instrumental to simulate the spot price dynamics in energy markets and to price Asian options and gas storages by Monte Carlo simulations in a framework similar to the one discussed in Cummins et al. (2017, 2018).
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Cited in
(11)- Exact simulation of normal tempered stable processes of OU type with applications
- Fast simulation of tempered stable Ornstein-Uhlenbeck processes
- Efficient simulation of \(p\)-tempered \(\alpha\)-stable OU processes
- Calibration for multivariate Lévy-driven Ornstein-Uhlenbeck processes with applications to weak subordination
- A bivariate normal inverse Gaussian process with stochastic delay: efficient simulations and applications to energy markets
- Fast pricing of energy derivatives with mean-reverting jump-diffusion processes
- Normal Tempered Stable Processes and the Pricing of Energy Derivatives
- The Ornstein-Uhlenbeck process and variance gamma process: parameter estimation and simulations
- Monte Carlo Simulation for Trading Under a Lévy-Driven Mean-Reverting Framework
- Closed-form option formulas for Kou-like models
- On the simulation of general multivariate gamma distributions using Dickman approximations
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