Modeling global and local dependence in a pair of commodity forward curves with an application to the US natural gas and heating oil markets

Ohana, Steve

doi:10.1016/j.eneco.2009.08.015

Cited by 16 publications

(13 citation statements)

References 20 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The importance of modelling of joint dynamics of several forward curves is especially stressed in Ohana (2010). Moreover, the techniques and methods used for forward curves modelling can also find their application in the pricing of more complex derivatives.…”

Section: Introductionmentioning

confidence: 99%

“…The two-factor model used in Ohana (2010) defines a futures price process under the physical probability measure and does not apply PCA, but employs parametrically defined factor loadings instead. Straightforward interpretability of this model is enhanced by a good explanatory power, which is comparable with that of PCA.…”

Section: Introductionmentioning

confidence: 99%

“…Unlike in Tolmasky and Hindanov (2002), the factors do not explain the mechanism of the interdependence of the forward curves, this mechanism is modelled separately instead. The combination of forward curve decomposition with econometric time series analysis represents the main innovation of Ohana (2010). Other econometric models capturing interrelations between markets had already been developed previously, see, e.g.…”

Section: Introductionmentioning

confidence: 99%

“…But despite well-elaborated specifications, econometric models in these studies used only frontmonth futures prices which constrained the power of the applied techniques. Chambers and Bailey (1996), Jin (2007), Onour (2009) andOhana (2010) insinuate that the dependencies and the dynamics of the commodity markets are rather complicated and may not be well described by the methods that are based on linear specifications only and assume elliptical distributions. In this work, we develop a new copula-based econometric model trying to capture most of the dependency.…”

Section: Introductionmentioning

confidence: 99%

“…Then, similar to Ohana (2010), the deterministic component is extracted from the shocks series by estimating the vector autoregression model, which yields heteroskedastic and temporally as well as mutually dependent residuals, which are analysed in the next step. To this end, we introduce a multivariate GARCH model based on the hierarchical Archimedean copula, which is a flexible instrument allowing for a variety of possible dependency structures for multivariate time series.…”

Section: Introductionmentioning

confidence: 99%

See 4 more Smart Citations

Modelling the general dependence between commodity forward curves

Zolotko¹,

Okhrin

2014

Energy Economics

View full text Add to dashboard Cite

This study proposes a novel framework for the joint modelling of commodity forward curves.Its key contribution is twofold. First, dynamic correlation models are applied in this context as part of the modelling scheme. Second, we introduce a family of dynamic conditional correlation models based on hierarchical Archimedean copulae (HAC DCC), which are flexible, but parsimonious instruments that capture a wide range of dynamic dependencies. The conducted analysis allows us to obtain precise out-of-sample forecasts of the distribution of the returns of various commodity futures portfolios. The Value-at-Risk analysis shows that HAC DCC models outperform other introduced benchmark models on a consistent basis.

show abstract

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Modelling the general dependence between commodity forward curves

Zolotko¹,

Okhrin

2014

Energy Economics

View full text Add to dashboard Cite

show abstract

Petroleum Term Structure Dynamics and the Role of Regimes

Nomikos

Pouliasis

2014

Journal of Futures Markets

View full text Add to dashboard Cite

This study investigates the dependence structure between correlated petroleum forward curves. After decomposing the term structure into level, slope, and curvature shocks we develop a flexible multi-regime error-correction factor model of the dynamics of the joint evolution of commodity pairs' curves. Volatilities and disequilibria across regimes are markedly different whereas the information content of the suggested framework is also tested in forecasting and value-at-risk experiments. The findings of this study have important implications for energy trading and risk management being particularly useful for predicting short-term spreads and the correlation matrix among traded contracts.

show abstract