PRICING OPTIONS ON FORWARDS IN ENERGY MARKETS: THE ROLE OF MEAN REVERSION'S SPEED

Schmeck MD (2016)
INTERNATIONAL JOURNAL OF THEORETICAL AND APPLIED FINANCE 19(8): 1650053.

Zeitschriftenaufsatz | Veröffentlicht| Englisch
 
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Abstract / Bemerkung
Consider the problem of pricing options on forwards in energy markets, when spot prices follow a geometric multi-factor model in which several rates of mean reversion appear. In this paper, we investigate the role played by slow mean reversion when pricing and hedging options on forwards. In particular, we determine both upper and lower bounds for the error one makes neglecting low rates of mean reversion in the spot price dynamics in a jump diffusion setting. When including stochastic volatility as well as time dependent mean reversion into the model, we quantify a bound for the maximum error one makes.
Stichworte
Electricity spot prices; multi-scale mean reversion; jumps; stochastic; volatility; delivery period; options on forwards; hedging; pricing; error; upper and lower bounds
Erscheinungsjahr
2016
Zeitschriftentitel
INTERNATIONAL JOURNAL OF THEORETICAL AND APPLIED FINANCE
Band
19
Ausgabe
8
Art.-Nr.
1650053
ISSN
0219-0249
eISSN
1793-6322
Page URI
https://pub.uni-bielefeld.de/record/2908022

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Schmeck MD. PRICING OPTIONS ON FORWARDS IN ENERGY MARKETS: THE ROLE OF MEAN REVERSION'S SPEED. INTERNATIONAL JOURNAL OF THEORETICAL AND APPLIED FINANCE. 2016;19(8): 1650053.
Schmeck, M. D. (2016). PRICING OPTIONS ON FORWARDS IN ENERGY MARKETS: THE ROLE OF MEAN REVERSION'S SPEED. INTERNATIONAL JOURNAL OF THEORETICAL AND APPLIED FINANCE, 19(8), 1650053. doi:10.1142/S0219024916500539
Schmeck, M. D. (2016). PRICING OPTIONS ON FORWARDS IN ENERGY MARKETS: THE ROLE OF MEAN REVERSION'S SPEED. INTERNATIONAL JOURNAL OF THEORETICAL AND APPLIED FINANCE 19:1650053.
Schmeck, M.D., 2016. PRICING OPTIONS ON FORWARDS IN ENERGY MARKETS: THE ROLE OF MEAN REVERSION'S SPEED. INTERNATIONAL JOURNAL OF THEORETICAL AND APPLIED FINANCE, 19(8): 1650053.
M.D. Schmeck, “PRICING OPTIONS ON FORWARDS IN ENERGY MARKETS: THE ROLE OF MEAN REVERSION'S SPEED”, INTERNATIONAL JOURNAL OF THEORETICAL AND APPLIED FINANCE, vol. 19, 2016, : 1650053.
Schmeck, M.D.: PRICING OPTIONS ON FORWARDS IN ENERGY MARKETS: THE ROLE OF MEAN REVERSION'S SPEED. INTERNATIONAL JOURNAL OF THEORETICAL AND APPLIED FINANCE. 19, : 1650053 (2016).
Schmeck, Maren Diane. “PRICING OPTIONS ON FORWARDS IN ENERGY MARKETS: THE ROLE OF MEAN REVERSION'S SPEED”. INTERNATIONAL JOURNAL OF THEORETICAL AND APPLIED FINANCE 19.8 (2016): 1650053.