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Finance and Stochastics
Erschienen in: Finance and Stochastics 2/2018

20.02.2018

Approximation of forward curve models in commodity markets with arbitrage-free finite-dimensional models

verfasst von: Fred Espen Benth, Paul Krühner

Erschienen in: Finance and Stochastics | Ausgabe 2/2018

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Abstract

In this paper, we show how to approximate Heath–Jarrow–Morton dynamics for the forward prices in commodity markets with arbitrage-free models which have a finite-dimensional state space. Moreover, we recover a closed-form representation of the forward price dynamics in the approximation models and derive the rate of convergence to the true dynamics uniformly over an interval of time to maturity under certain additional smoothness conditions. In the Markovian case, we can strengthen the convergence to be uniform over time as well. Our results are based on the construction of a convenient Riesz basis on the state space of the term structure dynamics.
Vorheriger Artikel An expansion in the model space in the context of utility maximization
Nächster Artikel Risk measures based on behavioural economics theory

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Fußnoten
1
This is a very useful consequence of the Szőkefalvi-Nagy dilation theorem [32, Theorem I.8.1].
 
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Metadaten
Titel
Approximation of forward curve models in commodity markets with arbitrage-free finite-dimensional models
verfasst von
Fred Espen Benth
Paul Krühner
Publikationsdatum
20.02.2018
Verlag
Springer Berlin Heidelberg
Erschienen in
Finance and Stochastics / Ausgabe 2/2018
Print ISSN: 0949-2984
Elektronische ISSN: 1432-1122
DOI
https://doi.org/10.1007/s00780-018-0355-9

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