Three-factor commodity forward curve model and its joint P and Q dynamics
提出了一个三因子模型，描述商品远期曲线在物理测度和风险中性测度下的动态，并应用于布伦特原油期货的校准、衍生品定价和风险管理。
In this paper, we propose a new framework for modeling commodity forward curves. The proposed model describes the dynamics of fundamental driving factors simultaneously under physical ( P ) and risk-neutral ( Q ) probability measures. Our model is an extension of the forward curve model by Borovkova and Geman (2007), into several directions. It is a three-factor model, incorporating the synthetic spot price, based on liquidly traded futures, stochastic level of mean reversion and an analog of the stochastic convenience yield. We develop an innovative calibration mechanism based on the Kalman filtering technique and apply it to a large set of Brent oil futures. Additionally, we investigate properties of the time-dependent market price of risk in oil markets. We apply the proposed modeling framework to derivatives pricing, risk management and counterparty credit risk. Finally, we outline a way of adjusting the proposed model to account for negative oil futures prices observed recently due to coronavirus pandemic. • A versatile 3-factor model for energy futures is introduced and developed. • The model is calibrated on a dataset of crude oil and natural gas forward curves. • The model describes the dynamics of variables under real world and pricing measures. • This allows model applications ranging from risk management to derivatives pricing. • The Market Price of Risk is extracted from daily forward curves.