Persistence of volatility in futures markets

This article examines the characteristics of key measures of volatility for different types of futures contracts to provide a better foundation for modeling volatility behavior and derivative values. Particular attention is focused on analyzing how different measures of volatility affect volatility persistence relationships. Intraday realized measures of volatility are found to be more persistent than daily measures, the type of GARCH procedure used for conditional volatility analysis is critical, and realized volatility persistence is not coherent with conditional volatility persistence. Specifically, although there is a good fit between the realized and conditional volatilities, no coherence exists between their degrees of persistence, a counterintuitive finding that shows realized and conditional volatility measures are not a substitute for one another

CASCADE: An Agent Based Framework For Modeling The Dynamics Of Smart Electricity Systems

The Complex Adaptive Systems, Cognitive Agents and Distributed Energy (CASCADE) project is developing a framework based on Agent Based Modelling (ABM). The CASCADE Framework can be used both to gain policy and industry relevant insights into the smart grid concept itself and as a platform to design and test distributed ICT solutions for smart grid based business entities. ABM is used to capture the behaviors of diff erent social, economic and technical actors, which may be defi ned at various levels of abstraction. It is applied to understanding their interactions and can be adapted to include learning processes and emergent patterns. CASCADE models ‘prosumer’ agents (i.e., producers and/or consumers of energy) and ‘aggregator’ agents (e.g., traders of energy in both wholesale and retail markets) at various scales, from large generators and Energy Service Companies down to individual people and devices. The CASCADE Framework is formed of three main subdivisions that link models of electricity supply and demand, the electricity market and power fl ow. It can also model the variability of renewable energy generation caused by the weather, which is an important issue for grid balancing and the profi tability of energy suppliers. The development of CASCADE has already yielded some interesting early fi ndings, demonstrating that it is possible for a mediating agent (aggregator) to achieve stable demandfl attening across groups of domestic households fi tted with smart energy control and communication devices, where direct wholesale price signals had previously been found to produce characteristic complex system instability. In another example, it has demonstrated how large changes in supply mix can be caused even by small changes in demand profi le. Ongoing and planned refi nements to the Framework will support investigation of demand response at various scales, the integration of the power sector with transport and heat sectors, novel technology adoption and diffusion work, evolution of new smart grid business models, and complex power grid engineering and market interactions.

Do jumps matter for volatility forecasting? Evidence from energy markets

This paper characterizes the dynamics of jumps and analyzes their importance for volatility forecasting. Using high-frequency data on four prominent energy markets, we perform a model-free decomposition of realized variance into its continuous and discontinuous components. We find strong evidence of jumps in energy markets between 2007 and 2012. We then investigate the importance of jumps for volatility forecasting. To this end, we estimate and analyze the predictive ability of several Heterogenous Autoregressive (HAR) models that explicitly capture the dynamics of jumps. Conducting extensive in-sample and out-of-sample analyses, we establish that explicitly modeling jumps does not significantly improve forecast accuracy. Our results are broadly consistent across our four energy markets, forecasting horizons, and loss functions