On the control of the difference between two Brownian motions: an application to energy markets modeling

@article{ThomasDeschatre2016,
abstract = {We derive a model based on the structure of dependence between a Brownian motion and its reflection according to a barrier. The structure of dependence presents two states of correlation: one of comonotonicity with a positive correlation and one of countermonotonicity with a negative correlation. This model of dependence between two Brownian motions B1 and B2 allows for the value of [...] to be higher than 1/2 when x is close to 0, which is not the case when the dependence is modeled by a constant correlation. It can be used for risk management and option pricing in commodity energy markets. In particular, it allows to capture the asymmetry in the distribution of the difference between electricity prices and its combustible prices.},
author = {Thomas Deschatre},
journal = {Dependence Modeling},
keywords = {Brownian motion; Copula; Asymmetry; Difference; Coupling; Barrier; Local correlation; Energy; Electricity; Commodities; Risk; copula; asymmetry; coupling; barrier; local correlation; energy markets; commodities; risk},
language = {eng},
number = {1},
pages = {161-183, electronic only},
title = {On the control of the difference between two Brownian motions: an application to energy markets modeling},
url = {http://eudml.org/doc/285850},
volume = {4},
year = {2016},
}

TY - JOUR
AU - Thomas Deschatre
TI - On the control of the difference between two Brownian motions: an application to energy markets modeling
JO - Dependence Modeling
PY - 2016
VL - 4
IS - 1
SP - 161
EP - 183, electronic only
AB - We derive a model based on the structure of dependence between a Brownian motion and its reflection according to a barrier. The structure of dependence presents two states of correlation: one of comonotonicity with a positive correlation and one of countermonotonicity with a negative correlation. This model of dependence between two Brownian motions B1 and B2 allows for the value of [...] to be higher than 1/2 when x is close to 0, which is not the case when the dependence is modeled by a constant correlation. It can be used for risk management and option pricing in commodity energy markets. In particular, it allows to capture the asymmetry in the distribution of the difference between electricity prices and its combustible prices.
LA - eng
KW - Brownian motion; Copula; Asymmetry; Difference; Coupling; Barrier; Local correlation; Energy; Electricity; Commodities; Risk; copula; asymmetry; coupling; barrier; local correlation; energy markets; commodities; risk
UR - http://eudml.org/doc/285850
ER -