Modelling Energy Spot Prices by Lévy Semistationary Processes
CREATES Research Paper 2010-18
30 Pages Posted: 3 May 2010
Date Written: April 29, 2010
This paper introduces a new modelling framework for energy spot prices based on Lévy semistationary processes. Lévy semistationary processes are special cases of the general class of ambit processes. We provide a detailed analysis of the probabilistic properties of such models and we show how they are able to capture many of the stylised facts observed in energy markets. Furthermore, we derive forward prices based on our spot price model. As it turns out, many of the classical spot models can be embedded into our novel modelling framework.
Keywords: Energy markets, forward price, Lévy semistationary process, stochastic integration, spot price
JEL Classification: C0, C1, C5, G1
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