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Characteristic function and Esscher transform of a switching Levy model for the temperature dynamic

Year: 2024

Type: preprint

Abstract: In this paper we extend models for the dynamic of the temperatures by considering random switching between Levy noises instead of Brownian motions, with a mean-reverting movement towards a seasonal periodic function. The use of Levy noises allows for jumps, capturing, together with the regime changes, sudden and relatively persistent oscillations in the weather. An approximated close-form expression for the characteristic function of the temperature process under an Esscher transform is given.

Source: arXiv (Cornell University)

DOI: 10.48550/arxiv.2411.19192

Authors: Jabbari, Rofeide, Olivares, Pablo

Language: English

Topic: Stochastic processes and financial applications

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W4405030172

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