Cutting edge – multi-scale volatility in commodity markets
We consider the problem of estimating cumulative volatility in energy commodity markets. We argue that the nature of volatility behaviour is very different from the standard stationary/non-stationary dichotomy popular in financial markets. We note that energy commodities have many time (that is, volatility) scales. This fact has dramatic implications for estimation of mean-reversion and cumulative volatility in those markets. More specifically, we show that standard mean-reversion models (such
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