PDSim: A Shiny App for Simulating and Estimating Polynomial Diffusion Models in Commodity Futures

ArXiv ID: 2409.19385 “View on arXiv”

Authors: Unknown

Abstract

PDSim is an R package that enables users to simulate commodity futures prices using the polynomial diffusion model introduced in Filipovic & Larsson (2016) through both a Shiny web application and R scripts. For user-supplied data, a standalone R routine has been developed to provide joint estimation of state variables and model parameters via the Extended Kalman Filter (EKF) or Unscented Kalman Filter (UKF). With its user-friendly interface, PDSim makes the features of simulations and estimations accessible. To date, it is the only package specifically designed for the simulation and estimation of the polynomial diffusion model. The Schwartz-Smith two-factor model (Schwartz & Smith, 2000) is also available within this package for both simulation and calibration. The package is validated through several tests, including replication of the results in Schwartz & Smith (2000), unit testing of the coverage rate, and verification of the outputs of the main functions.

Keywords: polynomial diffusion, R package, Extended Kalman Filter, Unscented Kalman Filter, Schwartz-Smith model, commodities

Complexity vs Empirical Score

  • Math Complexity: 7.5/10
  • Empirical Rigor: 3.0/10
  • Quadrant: Lab Rats
  • Why: The paper contains dense mathematical derivations involving polynomial diffusions, SDEs, and generator theory (Theorem 1), but the software implementation focuses on simulation and estimation tools with limited backtesting on real data, placing it in the ‘Lab Rats’ quadrant.
  flowchart TD
    A["Research Goal: Develop R Package for<br>Simulating/Estimating Polynomial Diffusion Models"] --> B["Methodology: Model Implementation<br>Polynomial Diffusion & Schwartz-Smith"]
    B --> C["Methodology: Estimation Technique<br>Extended/Unscented Kalman Filters"]
    C --> D["Methodology: Validation & Testing<br>Replication & Unit Testing"]
    D --> E["Data Input: User-Supplied<br>Commodity Futures Data"]
    D --> F["Computational Process: Shiny App<br>GUI & R Package Backend"]
    E --> F
    F --> G["Key Outcomes: PDSim Package<br>Simulation & Estimation Tools"]
    G --> H["Final Outcome: Validated &<br>User-Friendly R Package"]