Energy futures prices: term structure models with Kalman filter estimation |
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Authors: | Mihaela Manoliu Stathis Tompaidis |
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Institution: | 1. Department of Mathematics , Stanford University , 450 Serra Mall, Stanford, CA 94305‐2125nayak@math.stanford.edu;3. Department of Mathematics , Stanford University , 450 Serra Mall, Stanford, CA 94305‐2125 |
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Abstract: | We present a class of multi-factor stochastic models for energy futures prices, similar to the interest rate futures models recently formulated by Heath. We do not postulate directly the risk-neutral processes followed by futures prices, but define energy futures prices in terms of a spot price, not directly observable, driven by several stochastic factors. Our formulation leads to an expression for futures prices which is well suited to the application of Kalman filtering techniques together with maximum likelihood estimation methods. Based on these techniques, we perform an empirical study of a one- and a two-factor model for futures prices for natural gas. |
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Keywords: | Multi-FACTOR Term Structure Models Kalman Filter Estimation |
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