The Study on Long-Term Dynamics in China’s Coal Prices Based on Jump- Diffusion Modles

Abstract

This paper analyzes the evolution process of China’s coal prices formation mechanism and the trend of dynamic weekly data of Datong mix coal in Qinhuangdao market from January 2004 to December 2013. Resorting to the jump diffusion models and cumulants estimation, the empirical study on the phenomenon of coal prices fluctuations is executed. These results show that coal prices dynamics are characterized by high volatility, high intensity jumps, and upward drifts, and are concomitant with underlying fundamentals of coal markets and China’s economy. Furthermore, markets expected coal prices to still remain volatile and jumpy with higher probability and stay in jump for the next couple of years.