Correlating Lévy processes with self-decomposability: applications to energy markets

@article{Gardini2021CorrelatingLP,
  title={Correlating L{\'e}vy processes with self-decomposability: applications to energy markets},
  author={Matteo Gardini and Piergiacomo Sabino and Emanuela Sasso},
  journal={Decisions in Economics and Finance},
  year={2021}
}
Based on the concept of self-decomposability, we extend some recent multidimensional Lévy models built using multivariate subordination. Our aim is to construct multivariate Lévy processes that can model the propagation of the systematic risk in dependent markets with some stochastic delay instead of affecting all the markets at the same time. To this end, we extend some known approaches keeping their mathematical tractability, study the properties of the new processes, derive closed-form… Expand

Figures and Tables from this paper

A survey of electricity spot and futures price models for risk management applications
Abstract This review presents the set of electricity price models proposed in the literature since the opening of power markets. We focus on price models applied to financial pricing and riskExpand
Normal Tempered Stable Processes and the Pricing of Energy Derivatives
TLDR
An efficient algorithm is conceived for the exact generation of the trajectories which gives the possibility to implement Monte Carlo simulations without approximations or bias and an extension to future markets is presented. Expand
Pricing Energy Derivatives in Markets Driven by Tempered Stable and CGMY Processes of Ornstein-Uhlenbeck Type
In this study we consider the pricing of energy derivatives when the evolution of spot prices follows a tempered stable or a CGMY driven OrnsteinUhlenbeck process. To this end, we first calculate theExpand
The Variance Gamma++ Process and Applications to Energy Markets
The purpose of this article is to introduce a new Lévy process, termed Variance Gamma++ process, to model the dynamic of assets in illiquid markets. Such a process has the mathematical tractabilityExpand
A bivariate Normal Inverse Gaussian process with stochastic delay: efficient simulations and applications to energy markets
Using the concept of self-decomposable subordinators introduced in Gardini et al. [11], we build a new bivariate Normal Inverse Gaussian process that can capture stochastic delays. In addition, weExpand
Exact Simulation of Variance Gamma-Related OU Processes: Application to the Pricing of Energy Derivatives
ABSTRACT In this study we use a three-step procedure that relates the self-decomposability of the stationary law of a generalized Ornstein-Uhlenbeck process to the transition law of such processes.Expand

References

SHOWING 1-10 OF 62 REFERENCES
Financial Modelling with Jump Processes
WINNER of a Riskbook.com Best of 2004 Book Award!During the last decade, financial models based on jump processes have acquired increasing popularity in risk management and option pricing. Much hasExpand
A General Closed-Form Spread Option Pricing Formula
We propose a new accurate method for pricing European spread options by extending the lower bound approximation of Bjerksund and Stensland (2011) beyond the classical Black-Scholes framework. This isExpand
Multivariate asset models using Lévy processes and applications
In this paper, we propose a multivariate asset model based on Lévy processes for pricing of products written on more than one underlying asset. Our construction is based on a two-factorExpand
Forward or Backward Simulations? A Comparative Study
  • Quantitative Finance
  • 2020
Self-decomposability and Self-similarity: a Concise Primer
  • Physica A, Statistical Mechanics and its Applications, 387(7-9):1875–1894
  • 2008
Stochastic Calculus for Finance Volume 2
  • Springer
  • 2004
Gamma-related Ornstein–Uhlenbeck processes and their simulation*
ABSTRACT We investigate the distributional properties of two Lévy-driven Ornstein–Uhlenbeck (OU) processes whose stationary distributions are the gamma law and the bilateral gamma law, respectively.Expand
Pricing exchange options with correlated jump diffusion processes
We study the applicability to energy facilities of a model for correlated Poisson processes generated by self-decomposable jumps. In this context, the implementation of our approach, both to shapeExpand
Coupling Poisson Processes by Self-Decomposability
We analyze a method to produce pairs of non-independent Poisson processes M(t), N(t) from positively correlated, self-decomposable, exponential renewals. In particular, the present paper provides theExpand
Pricing and Hedging Multiasset Spread Options Using a Three-Dimensional Fourier Cosine Series Expansion Method
The aim of this paper is to show the bene fit of applying a three-dimensional Fourier cosine series expansion method in order to price and hedge multi-asset spread options. The approach consists ofExpand
...
1
2
3
4
5
...