2023/05/02 by Matteo Gardini, Gardini, Matteo, Edoardo Santilli +1
Economics, Econometrics and Finance · Energy · Engineering · #Energy Load and Power Forecasting #FOS: Economics and business #FOS: Mathematics #G.3 #G.5.1 #Global Energy and Sustainability Research #I.6 #Market Dynamics and Volatility #Mathematical Finance (q-fin.MF) #Probability (math.PR)
paper · pdf · doi:10.48550/arxiv.2305.01485
openalex publication_date 2023/05/02 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
In this article we discuss the application of the Heath-Jarrow-Morton framework Heath et al. [26] to energy markets. The goal of the article is to give a detailed overview of the topic, focusing on practical aspects rather than on theory, which has been widely studied in literature. This work aims to be a guide for practitioners and for all those who deal with the practical issues of this approach to energy market. In particular, we focus on the markets' structure, model calibration by dimension reduction with Principal Component Analysis (PCA), Monte Carlo simulations and derivatives pricing. As application, we focus on European power and gas markets: we calibrate the model on historical futures quotations, we perform futures and spot simulations and we analyze the results.