We consider a seasonal mean-reverting model for energy commodity prices with jumps and Heston-type stochastic volatility, as well as three nested models for comparison. By exploiting the affine form of the log-spot models, we develop a general valuation framework for futures and discrete...

In this paper we propose a stochastic volatility model for crude oil markets that has the particularity to feature a regime-switching price of variance-risk. While preserving tractability, this model allows us to capture the episodes of negative and positive variance risk premium. A two-state...

In this work we perform a pricing exercise of different types of spread options; we particularly focus on European calendar and crack spread options. We present the expressions followed by the joint characteristic functions of the underlying log-prices for a panel of bivariate processes. The...

The electricity commodity exchange is a place where you can sell and buy, among other things, electricity. Is the sale free from profit-generating activities that have no relation to the production costs incurred ? Here, we suggest a mathematical model that tracks this type of the non-ethical...

Three models of trading on the electricity commodity exchange are presented, where the market clearing price is based on the weighted average value of the proposed goods. The models make it possible to estimate the prices of the goods offered for sale on the basis of two parameters; the market...

In this paper, we develop an Electricity Market Model (EMM) for electricity futures and forwards contracts. The dynamic of these derivatives is modelled as multi-factor market model where the idea is to match the observed volatility term structure and correlation surface among different...

This paper examines the relationship between spot and futures prices for commodities, including those for energy (crude oil, gasoline, heating oil markets and natural gas), precious and base metals (gold, silver, aluminum, copper, lead, nickel and tin), and agricultural commodities (corn,...

We propose a generalized Constant Proportion Portfolio Insurance (CPPI) strategy for the commodity futures fund which promises at least a partial principal guarantee at the end of the investment horizon. We present the generalized rebalancing rules to allocate capital between a risk-free asset...

We investigate the informational content of options-implied probability density functions (PDFs) for the future price of oil. Using a semiparametric variant of the methodology in Breeden and Litzenberger (1978), we investigate the fit and smoothness of distributions derived from alternative PDF...

The detrended implied volatility of commodity options (VOL) forecasts the cross section of the commodity futures returns significantly. A zero-cost strategy that is long in low VOL and short in high VOL commodities yields an annualized return of 12.66% and a Sharpe ratio of 0.69. Notably, the...