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Review of Quantitative Finance and Accounting

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27.04.2016 | Original Research

The affine styled-facts price dynamics for the natural gas: evidence from daily returns and option prices

verfasst von: Chih-Chen Hsu, An-Sing Chen, Shih-Kuei Lin, Ting-Fu Chen

Erschienen in: Review of Quantitative Finance and Accounting | Ausgabe 3/2017

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Abstract

This study analyzes affine styled-facts price dynamics of Henry Hub natural gas price by incorporating the price features of jump risk, and seasonality within stochastic volatility framework. Affine styled-facts dynamics has the advantage of being able to incorporate mean reversion (MR), stochastic volatility (SV), seasonality trends (S), and jump diffusion (J) in a standardized inclusive framework. Our main finding is that models that incorporate jumps significantly improve overall out-of-sample option pricing performance. The combined MRSVJS model provides the best fit of both daily gas price returns and the related cross section of option prices. Incorporating seasonal effects tend to provide more stable pricing ability, especially for the long-term option contracts.

Vorheriger Artikel Corporate governance, ownership structure and managing earnings to meet critical thresholds among Chinese listed firms

Nächster Artikel Recap of the 27th annual financial economics and accounting conference, September 30–October 1, 2016

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If the likelihood value \(L_{j + 1}\) is small or equal than \(L_{j}\) when we perform maximizing process of \(\varOmega_{j + 1}\), then we substitute \(\varOmega_{j + 1}\) by \(\varOmega_{j}\) and to re-perform PF and EM parameter estimation process. The final estimated parameters \(\varOmega_{j}\) and the likelihood values \(L_{j}\) are decided if the value of \(L_{j + 1}\) are all small than \(L_{j}\) for running 10 times.

These data are calculated by taking the sum of the observations in each of the moneyness categories (OTM, ATM, ITM) divided by the total observations individually.

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Titel: The affine styled-facts price dynamics for the natural gas: evidence from daily returns and option prices
verfasst von: Chih-Chen Hsu
An-Sing Chen
Shih-Kuei Lin
Ting-Fu Chen
Publikationsdatum: 27.04.2016
Verlag: Springer US
Erschienen in: Review of Quantitative Finance and Accounting / Ausgabe 3/2017
Print ISSN: 0924-865X
Elektronische ISSN: 1573-7179
DOI: https://doi.org/10.1007/s11156-016-0569-x

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