Cutting edge: Kriging smooth energy futures curves

Applying kriging to extract smooth curves from energy futures prices

The Nelson-Siegel curve and how to calibrate its parameters to a set of futures prices is recalled

A range of different approaches exists to extract a continuous curve of futures prices from market-observed prices. At Nymex, accessible futures prices for delivery of WTI crude oil are available every month over a time horizon up to several years. The Nelson-Siegel curve (see Nelson & Siegel (1987)) adopted from fixed-income markets is a way to derive a continuous curve of oil futures prices from such market data. It is a four-parameter family of curves, allowing for a long-term constant level,