We compute an analytical expression for the moment generating function of the joint random vector consisting of a spot price and its discretely monitored average for a large class of square-root price dynamics. This result, combined with the Fourier transform pricing method proposed by Carr and...

In the present paper, we convert the usual <italic>n</italic>-step backward recursion that arises in option pricing into a set of independent integral equations by using a <italic>z</italic>-transform approach. In order to solve these equations, we consider different quadrature procedures that transform the integral equation...

The paper explores the fit properties of a class of multivariate Lévy processes, which are characterized as time-changed correlated Brownian motions. The time-change has a common and an idiosyncratic component, to re ect the properties of trade, which it represents. The resulting process may...

As an extension of the VaR-constrained hedging, we propose a closed-form solution to the problem of optimizing portfolios, based on price and weather. For electric power companies, price and quantity are volatile, and in hydro-electricity generation quantity can be related to weather conditions....

This paper presents a family of processes to model electricity spot prices in deregulated markets. Besides mean-reversion, a property they share with other comodities, power prices exhibit the unique feature of spikes in trajectories. We introduce a class of discontinuous processes exhibiting a...

We derive a general formula for the change of numéraire in multifactor ane arbitrage free models driven by marked point processes. As a complement, we present both ane structures and change of measures in the general setting of jump diusions. This provides for a comprehensive view on the subject.

This paper analyzes the special features of electricity spot prices derived from the physics of this commodity and from the economics of supply and demand in a market pool. Besides mean reversion, a property they share with other commodities, power prices exhibit the unique feature of spikes in...

Galluccio and Roncoroni (2006) empirically demonstrate that cross-sectional data provide relevant information when assessing dynamic risk in fixed income markets. We put forward a theoretical framework supporting that finding based on the notion of "shape factors". We devise an econometric...