Mean reversion
Option pricing for power prices with spikes
European power prices are very volatile and subject to spikes, particularly in German and Dutch markets. Ronald Huisman and Cyriel de Jong examine the impact of spikes on option prices by comparing prices...
Commodity markets exhibit multi-factor behaviour as well as mean reversion. Building upon their previous paper, David Beaglehole and Alain Chebanier conclude the current Masterclass series by developing...
Commodity markets such as crude oil exhibit mean reversion as well as option smiles. The authors construct a model suitable for pricing exotic options in these markets
Using market and credit risk analytics to strengthen performance
How are banks improving their risk management techniques?
This handy guide reviews the various steps banks are taking to improve their risk management techniques, looking at the benefits and pitfalls of each one.
More Mean reversion articles
Mean reversion
A tendency for a stochastic process to revert over time to an equilibrium level, such as the average (the mean) of historical prices, or some other variable. Interest rates, stock returns, price-earning ratios, and implied volatilities tend to exhibit...
Volatility swaps made simple
Most articles on volatility products focus on the relatively straightforward varianceswaps. Here, Oliver Brockhaus and Douglas Long take the subject further with a simplemodel of volatility swaps
The price of credit
Generating a zero-coupon curve is the first step in pricingany derivative structure, as any practitioner ofinterest rate derivatives knows. To generate thecurve, one needs to calibrate it to the market pricesof benchmark instruments, eg, par interest...
How can investment banks use grid technology?
Learn how technology is enhancing risk management
Technology can provide a competitive advantage in banking. How it is applied by Tier 1 and Tier 2 institutions, to the benefit for their risk management systems, is discussed.
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