http://www.erasmusenergy.com en-us N/A dejong@kyos.com Tue, 06 Jan 2009 07:07:04 CET 20 http://www.erasmusenergy.com/articles/44/1/Two-factor-jump-diffusion-models-for-the-valuation-of-electricity-forward-contracts/Page1.html Published in:
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We propose two different two-factor jump-diffusion model with seasonality for the valuation of electricity futures contracts. The models we propose are extensions of Schwartz and Smith (2000) and Lucia and Schwartz (2001), and both of them are special cases of our model. The model we propose is a two-factor jumpdiffusion model with seasonality. The two diffusive factors resemble the long-term short-term model proposed among others by Schwartz and Smith (200). One of the extensions is the possibility for the long-term factor to be a mean-reverting process. Another major extension is the inclusion of a jump term in the model and we also allow the intensity process (probability of jumps) to be non-constant. The model also includes as in Lucia and Schwartz (2001) a deterministic seasonal factor.
We model the stochastic behavio ur of the underlying (unobservable) state variables by Affine Diffusions (AD) and Affine Jump Diffusions (AJD). In that way we are able to exploit the recent transform analysis of Duffie, Pan and Singleton (2000), and Chacko and Das (2002) and we obtain closed form formulas, for the price of futures contracts.]]> no@spam.com (Pablo Villaplana) Thu, 27 Sep 2007 13:29:49 CEST http://www.erasmusenergy.com/articles/44/1/Two-factor-jump-diffusion-models-for-the-valuation-of-electricity-forward-contracts/Page1.html