Modelling Energy Spot Prices by Lévy Semistationary Processes

CREATES Research Paper 2010-18

30 Pages Posted: 3 May 2010

See all articles by Ole E. Barndorff-Nielsen

Ole E. Barndorff-Nielsen

University of Aarhus - Thiele Centre, Department of Mathematical Sciences

Fred Espen Benth

University of Oslo

Almut Veraart

Imperial College London; CREATES

Date Written: April 29, 2010

Abstract

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

Suggested Citation

Barndorff-Nielsen, Ole E. and Benth, Fred Espen and Veraart, Almut, Modelling Energy Spot Prices by Lévy Semistationary Processes (April 29, 2010). CREATES Research Paper 2010-18, Available at SSRN: https://ssrn.com/abstract=1597700 or http://dx.doi.org/10.2139/ssrn.1597700

Ole E. Barndorff-Nielsen (Contact Author)

University of Aarhus - Thiele Centre, Department of Mathematical Sciences ( email )

Ny Munkegade
Aarhus, DK 8000
Denmark

Fred Espen Benth

University of Oslo ( email )

Center of Mathematics for Applications
Oslo, N-0317
Norway

Almut Veraart

Imperial College London ( email )

Department of Mathematics
180 Queen's Gate
London, SW7 2AZ

CREATES ( email )

Aarhus University
DK-8000 Aarhus C
Denmark

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