Cross-Commodity Modelling by Multivariate Ambit Fields

25 Pages Posted: 21 Jan 2014

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: January 20, 2014

Abstract

This paper proposes a multivariate model for commodity forward curves which is based on multivariate ambit fields.We show how a multivariate ambit field can be used to describe complex dependencies between commodities while staying in a tractable multivariate martingale framework. Moreover, we study in detail how spread options can be priced in our new ambit framework. Here we consider both calendar spreads written on one commodity as well as spread options on different commodity futures.

Keywords: Ambit fields, commodities, forward prices, spread options

JEL Classification: C10, G10

Suggested Citation

Barndorff-Nielsen, Ole E. and Benth, Fred Espen and Veraart, Almut, Cross-Commodity Modelling by Multivariate Ambit Fields (January 20, 2014). Available at SSRN: https://ssrn.com/abstract=2381841 or http://dx.doi.org/10.2139/ssrn.2381841

Ole E. Barndorff-Nielsen

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 (Contact Author)

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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