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Pricing of forwards and options in a multivariate non-Gaussian stochastic volatility model for energy markets. (English) Zbl 1269.91083
Summary: In [F. E. Benth and L. Vos, Adv. Appl. Probab. 45, No. 2, 545–571 (2013; Zbl 1269.91036)] we introduced a multivariate spot price model with stochastic volatility for energy markets which captures characteristic features, such as price spikes, mean reversion, stochastic volatility, and inverse leverage effect as well as dependencies between commodities. In this paper we derive the forward price dynamics based on our multivariate spot price model, providing a very flexible structure for the forward curves, including contango, backwardation, and hump shape. Moreover, a Fourier transform-based method to price options on the forward is described.

91G20 Derivative securities (option pricing, hedging, etc.)
91B24 Microeconomic theory (price theory and economic markets)
91B84 Economic time series analysis
60H30 Applications of stochastic analysis (to PDEs, etc.)
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