Stochastic resonance of drawdown risk in energy market prices

Can the Heston Model Forecast Energy Generation? A Systematic Literature Review

“…The first paper that used variables from the energy sector was published in 2011, which aimed to predict the gas price in England (Benth, 2011). Since then, the use of energy variables has increased significantly, but still with studies focused only on forecasting the price of energy sources, such as crude oil and gas (Dong et al, 2020;Hsu et al, 2017;Leng and Li, 2020).…”

“…In Wollongong, the studies were developed by the school of mathematics and applied statistics to predict stock exchange assets and evaluate variance swaps (He and Chen, 2021;He and Zhu, 2016;Rujivan and Zhu, 2012;Zhu and Lian, 2011;2015). In China, most studies focused on application of Econophysics models to predict the price of energy-related assets (Ding et al, 2019;Dong et al, 2020;Leng and Li, 2020;Li et al, 2016;Zhong et al, 2019). The most relevant authors are also from these countries: Song-Ping Zhu from Australia and Jiang-Cheng LI from China.…”

“…Most studies applied financial variables due to volatility inherent in these data and because it was the area where the Heston model emerged (Heston, 1993;Heston and Nandi, 2000). The energy sector appears in the second position, since it also has volatile and unpredictable data (Dong et al, 2020). The main variables used were: option prices (European and American options, energy prices and simulated data); stock exchange indexes (S&P 500, CSI 300 and DJIA); personal income; and mean residence time (Balajewicz and Toivanen, 2017;Bi et al, 2016;Kyriakou et al, 2016;Li et al, 2016;Masoliver and Perelló, 2007;Richmond and Sabatelli, 2004).…”

“…In Figure 8, "stochastic volatility" is the most quoted term, as the Heston model is a very successful closed-form model based on stochastic volatility (Zhu and Lian, 2012). Other trend topics are related to the justifications of the studies, since the Heston model is able to describe the dynamics of assets pricing and variance swaps (Balajewicz and Toivanen, 2017;Bi et al, 2016;Cao and Fang , 2017;Dong et al, 2020). In summary, the Heston model is a very well evaluated and widely used method in the financial area.…”

“…The pure two-factor stochastic model(Cao and Fang, 2017;Rujivan and Zhu, 2014) • Regime-switching model based on a Markov chain(Elliott and Lian, 2013;Lin and He, 2021) • Periodic or delayed model with Fourier and Laplace transforms(Ding et al, 2019;Dong et al, 2020).…”