THE UNIVERSITY OF CALGARY Stochastic Models for Natural Gas and Electricity Prices

ii This thesis focuses on modeling natural gas and electricity prices by affine jump-diffusion processes. We start from investigating the peculiar behavior of natural gas and electricity prices such as distribution, mean reversion, volatility and correlation. Then we utilize maximum likelihood estimation to calibrate several mean-reverting jump-diffusion models fitting on gas and electricity prices. While 1-factor jump-diffusion models are employed for modeling a single prices series, 2-factor jump-diffusion models attend to discover possible correlations between gas and electricity prices. Meanwhile, we examine how different distributions of jump amplitudes affect model calibration. We finally conduct model comparison based on empirical data and simulation. iii Acknowledgements The work on this thesis has been an inspiring, challenging, but always interestin