English

Polynomial processes for power prices

Computational Finance 2018-04-27 v2

Abstract

Polynomial processes have the property that expectations of polynomial functions (of degree nn, say) of the future state of the process conditional on the current state are given by polynomials (of degree n\leq n) of the current state. Here we explore the application of polynomial processes in the context of structural models for energy prices. We focus on the example of Alberta power prices, derive one- and two-factor models for spot prices. We examine their performance in numerical experiments, and demonstrate that the richness of the dynamics they are able to generate makes them well suited for modelling even extreme examples of energy price behaviour.

Keywords

Cite

@article{arxiv.1710.10293,
  title  = {Polynomial processes for power prices},
  author = {Damir Filipovic and Martin Larsson and Tony Ware},
  journal= {arXiv preprint arXiv:1710.10293},
  year   = {2018}
}
R2 v1 2026-06-22T22:28:02.764Z