Book Review: "Stochastic Modeling of Electricity and Related Markets". Ch 5

In this talk, we investigate the natural gas markets. We analyze empirically the spot price of gas in the UK and show that its time evolution is captured reasonably well by a geometric model with NIG distributed noise. A jump-diffusion model is also investigated, and we look at the implications of the different spot model choices to the prediction of the gas futures term structure. We also discuss the extension to multi-factor spot models and possible ways to estimate such on data.