Capturing the power options smile by an additive two-factor model for overlapping futures prices

Piccirilli M, Schmeck MD, Vargiolu T (2021)
Energy Economics 95: 105006.

Zeitschriftenaufsatz | Veröffentlicht | Englisch
 
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Autor*in
Piccirilli, Marco; Schmeck, Maren DianeUniBi; Vargiolu, Tiziano
Abstract / Bemerkung
In this paper we introduce an additive two-factor model for electricity futures prices based on Normal Inverse Gaussian Levy processes, that fulfills a no-overlapping-arbitrage (NOA) condition. We compute European option prices by Fourier transform methods, introduce a specific calibration procedure that takes into account no arbitrage constraints and fit the model to power option settlement prices of the European Energy Exchange (EEX). We show that our model is able to reproduce the different levels and shapes of the implied volatility (IV) profiles displayed by options with a variety of delivery periods. (c) 2020 Elsevier B.V. All rights reserved.
Stichworte
Volatility smile; Overlapping delivery periods; Arbitrage; Additive; models; Power options; FFT
Erscheinungsjahr
2021
Zeitschriftentitel
Energy Economics
Band
95
Art.-Nr.
105006
ISSN
0140-9883
eISSN
1873-6181
Page URI
https://pub.uni-bielefeld.de/record/2953829

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Piccirilli M, Schmeck MD, Vargiolu T. Capturing the power options smile by an additive two-factor model for overlapping futures prices. Energy Economics. 2021;95: 105006.
Piccirilli, M., Schmeck, M. D., & Vargiolu, T. (2021). Capturing the power options smile by an additive two-factor model for overlapping futures prices. Energy Economics, 95, 105006. https://doi.org/10.1016/j.eneco.2020.105006
Piccirilli, M., Schmeck, M. D., and Vargiolu, T. (2021). Capturing the power options smile by an additive two-factor model for overlapping futures prices. Energy Economics 95:105006.
Piccirilli, M., Schmeck, M.D., & Vargiolu, T., 2021. Capturing the power options smile by an additive two-factor model for overlapping futures prices. Energy Economics, 95: 105006.
M. Piccirilli, M.D. Schmeck, and T. Vargiolu, “Capturing the power options smile by an additive two-factor model for overlapping futures prices”, Energy Economics, vol. 95, 2021, : 105006.
Piccirilli, M., Schmeck, M.D., Vargiolu, T.: Capturing the power options smile by an additive two-factor model for overlapping futures prices. Energy Economics. 95, : 105006 (2021).
Piccirilli, Marco, Schmeck, Maren Diane, and Vargiolu, Tiziano. “Capturing the power options smile by an additive two-factor model for overlapping futures prices”. Energy Economics 95 (2021): 105006.

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