GARCH

The GARCH structures appear to be the most flexible and appropriate framework
providing they are developed to adjust for the factors outlined above. These tend to
hold up well under normal conditions with the energy markets placing particularly
strong weighting to the most recent data. Where appropriate these models can be
developed to capture the mean reversion and seasonality characteristics (although
calibration is a more difficult problem).
However, the non-normal distribution issue is more difficult to solve. The principal
approach being used by many parties to date is through the use of historical
distributions in Monte Carlo, primarily as a stress test.