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A simple yet powerful model for simulating spot and forward prices

version 1.3.0.0 (317 KB) by Moeti Ncube
A novel procedure that can be used for Monte Carlo pricing of commodities

1.3K Downloads

Updated 09 Dec 2013

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This code implements the results of the attached paper: "A Simple Yet Comprehensive Spot and Forward Pricing Model"

The paper outlines a novel approach for simulating spot and forward prices.

Many commodity pricing models, such as the popular Schwartz-Smith 2000 and variants of it, require a calibration step which never fully re-captures the forward prices or volatilities. This approach eliminates this step while generating simulations that are asymptotically consistent with the commodity's forward and volatility term structure on the valuation date specified. The model is also able to capture the correlation dynamics between contracts months and across commodities.

The design of the model is meant to be accessible to less technical practitioners that are looking for an easily implementable, yet powerful price process.

This code demonstrates the ideas of the paper by simulating two (can be extended to more) commodity price processes (On-Peak power prices and natural gas) using the market data provided in the "input_file.xlsx" excel sheet.

Finally, the simulated price paths are used to price a long dated spark spread option via Monte Carlo. The code also outputs the spot price realizations to Excel (output_file.xlsx) for easy validation of the dynamics of both price processes.

Cite As

Moeti Ncube (2021). A simple yet powerful model for simulating spot and forward prices (https://www.mathworks.com/matlabcentral/fileexchange/44633-a-simple-yet-powerful-model-for-simulating-spot-and-forward-prices), MATLAB Central File Exchange. Retrieved .

MATLAB Release Compatibility
Created with R2013b
Compatible with any release
Platform Compatibility
Windows macOS Linux

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