Author : Per Bjarte Solibakke
Publisher :
ISBN 13 :
Total Pages : 52 pages
Book Rating : 4.:/5 (13 download)
Book Synopsis Stochastic Volatility Models for the European Electricity Markets by : Per Bjarte Solibakke
Download or read book Stochastic Volatility Models for the European Electricity Markets written by Per Bjarte Solibakke and published by . This book was released on 2014 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper builds and implements a multifactor stochastic volatility model for the latent (and observable) volatility from the quarter and year forward contracts at the NASDAQ OMX Commodity Exchanges, applying Bayesian Markov chain Monte Carlo simulation methodologies for estimation, inference, and model adequacy assessment. Stochastic volatility is the main way time-varying volatility is modelled in financial markets. An appropriate scientific model description, specifying volatility as having its own stochastic process, broadens the applications into derivative pricing purposes, risk assessment and asset allocation and portfolio management. From an estimated optimal and appropriate stochastic volatility model, the paper reports risk and portfolio measures, extracts conditional one-step-ahead moments (smoothing), forecast one-step-ahead conditional volatility (filtering), evaluates shocks from conditional variance functions, analyses multi-step-ahead dynamics, and calculates conditional persistence measures. (Exotic) option prices can be calculated using the re-projected conditional volatility. Observed market prices and implied volatilities establish market risk premiums. The analysis adds insight and enables forecasts to be made, building up the methodology for developing valid scientific commodity market models.