STEEL PRICE MODELLING WITH LEVY PROCESS

Abstract

The aim of this study is to model steel price returns by Lévy process. The daily LME Steel Billets Spot Prices between 04.01. 2010 and 31.10.2011 are analyzed and AR[1] ~ GARCH[1,1] discrete model is found to be the best candidate taking all indicators into account. Then the continuous analogue of the discrete model is derived from the discrete model parameters. During the overall study, time (pathwise), distributional and spectral analysis performed. Finally, it is shown that the volatility simulated from both discrete and continuous models shows similar volatility patterns. The results of the study could be utilized to predict the behavior of future steel prices’ moves. In addition, the finding could be a good reference specialist and researchers who are interested in steel market.

Keywords

• Steel Modelling, ARMA, GARCH, COGARCH, Lévy Processes, Discrete Time Models, Continuous Time Models, Stochastic Modelling

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