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

Dependence Modeling (2016)

- Volume: 4, Issue: 1, page 161-183, electronic only
- ISSN: 2300-2298

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topThomas Deschatre. "On the control of the difference between two Brownian motions: an application to energy markets modeling." Dependence Modeling 4.1 (2016): 161-183, electronic only. <http://eudml.org/doc/285850>.

@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 -

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