A new approach to modeling the natural gas futures curve and Levy based models

In this talk, we discuss modeling the natural gas futures curve by first using a regression equation to separate the seasonality and the underlying curve. A two factor model based on Pilipovic, Xu with spot prices and a long run mean is used to compute the futures price. The long run mean, which also tells us if the curve is in contango or backwardation, is revealed through the underlying futures curve using a procedure we shall discuss. This allows for more accurate simulations of the gas spot price through the two factor model, and lets us capture the dynamics of the futures curve. Levy-based one factor OU type models using alpha stable and NIG processes are also introduced. The calibration of these models are also discussed.