Journal of Energy Markets
ISSN:
1756-3607 (print)
1756-3615 (online)
Editor-in-chief: Derek W. Bunn
![Risk.net](https://www.risk.net/sites/default/files/styles/print_logo/public/2018-09/print-logo.png?itok=1TpHrpuP)
Model specification analysis in the methanol markets
Mark Cummins, Andrea Bucca, Bernard Murphy
Abstract
ABSTRACT
Methanol is produced from synthesis gas and has many chemical applications, the most notable of which is formaldehyde production. Much literature exists on methanol and its production but, to the authors' knowledge, none exists on spot price behavior. This paper fills this gap with an analysis of the European and US markets. A model specification analysis is performed on a set of models that incorporate jumps and/or stochastic volatility. Formal tests find no statistical support in favor of the extended models over Black-Scholes. However, in general, these models match the historical moments much better. A stochastic volatility jump-diffusion model of Bates performs best. Modeling-related insights on fair valuation of embedded derivatives and front-office structuring of methanol-based derivatives are provided.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net