Template-type: ReDIF-Paper 1.0
Author-Name: Manuel Moreno
Author-Workplace-Name: Department of Economic Analysis and Finance, University of Castilla-La Mancha, Toledo, Spain.
Author-Name: Alfonso Novales
Author-Workplace-Name: Instituto Complutense de Análisis Económico (ICAE), and Department of Economic Analysis, Facultad de Ciencias Económicas y Empresariales, Universidad 
	Complutense, 28223 Madrid, Spain.
Author-Name: Federico Platania
Author-Workplace-Name: Léonard de Vinci Pôle Universitaire, Paris La Défense, France.
Title: Long-term swings and seasonality in energy markets
Abstract: This paper introduces a two-factor continuous-time model for commodity pricing under the assump- tion that prices revert to a stochastic mean level, which shows 
	smooth, periodic fluctuations over long periods of time. We represent the mean reversion price by a Fourier series with a stochastic component. We also consider a 
	seasonal component in the price level, an essential characteristic of many commodity prices, which we represent again by a Fourier series. We obtain analytical 
	pricing expressions for futures contracts. Using futures price data on Natural Gas, we provide evidence on the presence of long-term fluctuations and show how to 
	estimate the long-term component si- multaneously with a seasonal component using the Kalman filter. We analyse the in-sample and out-of-sample empirical performance 
	of our pricing model with and without a seasonal component and compare it with the Schwartz and Smith (2000) model. Our findings show the in-sample and out-of-sample 
	superiority of our model with seasonal fluctuations, thereby providing a simple and powerful tool for portfolio management, risk management, and derivative pricing.
Keywords: Finance; Energy Markets; Seasonality; Long-term swings; Kalman filter.
Length: 36 pages 
Creation-Date: 2019-09
Number: 2019-29
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1929.txt
File-URL: https://eprints.ucm.es/id/eprint/57379/1/1929.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:1929