Analysing common processes used to model energy prices
An introduction to energy spot price processes
The choice of which price process to use when modelling energy prices is crucial to assessing the valuation, risk calculation and hedge parameters for energy derivatives and physical assets. Yet energy spot prices are particularly difficult to model compared with other financial asset prices such as equities, interest rates or currencies. Before introducing the most common stochastic price processes used to model energy prices, it is important to understand some of the main dynamics that drive
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