Related papers: Pricing electricity derivatives within a Markov re…
Accurate prediction of electricity prices plays an essential role in the electricity market. To reflect the uncertainty of electricity prices, price intervals are predicted. This paper proposes a novel prediction interval construction…
In this paper we introduce a new concept for modelling electricity prices through the introduction of an unobservable intrinsic electricity price $p(\tau)$. We use it to connect the classical theory of storage with the concept of a risk…
We consider pricing weather derivatives for use as protection against weather extremes. The method described utilizes results from spatial statistics and extreme value theory to first model extremes in the weather as a max-stable process,…
The recent research report of U.S. Department of Energy prompts us to re-examine the pricing theories applied in electricity market design. The theory of spot pricing is the basis of electricity market design in many countries, but it has…
This paper develops a coupled model for day-ahead electricity prices and average daily temperature which allows to model quanto weather and energy derivatives. These products have gained on popularity as they enable to hedge against both…
The shortcomings of the popular Black-Scholes-Merton (BSM) model have led to models which could more accurately model the behavior of the underlying assets in energy markets, particularly in electricity and future oil prices. In this paper…
We consider the pricing of derivatives written on accumulated marks, such as weather derivatives or aggregate loss claims, using a self-exciting marked point process. The jump intensity mean-reverts between events and increases at jump…
Markovian-regime-switching (MRS) models are commonly used for modelling economic time series, including electricity prices where independent regime models are used, since they can more accurately and succinctly capture electricity price…
Modeling price risks is crucial for economic decision making in energy markets. Besides the risk of a single price, the dependence structure of multiple prices is often relevant. We therefore propose a generic and easy-to-implement method…
This paper considers the often overlooked fact that electricity spot prices in individual European generation zones evolve as a high dimensional panel structure. A general continuous time framework is developed by formulating the panel as…
We discuss stochastic modeling of volatility persistence and anti-correlations in electricity spot prices, and for this purpose we present two mean-reverting versions of the multifractal random walk (MRW). In the first model the…
Spot option prices, forwards and options on forwards relevant for the commodity markets are computed when the underlying process S is modelled as an exponential of a process {\xi} with memory as e.g. a L\'evy semi-stationary process.…
In an observed generalized semi-Markov regime, estimation of transition rate of regime switching leads towards calculation of locally risk minimizing option price. Despite the uniform convergence of estimated step function of transition…
In this paper we propose a tractable quadratic programming formulation for calculating the equilibrium term structure of electricity prices. We rely on a theoretical model described in [21], but extend it so that it reflects actually traded…
We study the valuation and hedging problem of European options in a market subject to liquidity shocks. Working within a Markovian regime-switching setting, we model illiquidity as the inability to trade. To isolate the impact of such…
The liberalization of electricity markets and the development of renewable energy sources has led to new challenges for decision makers. These challenges are accompanied by an increasing uncertainty about future electricity price movements.…
We present the closed-form solution to the problem of hedging price and quantity risks for energy retailers (ER), using financial instruments based on electricity price and weather indexes. Our model considers an ER who is intermediary in a…
Forecasting electricity prices is a challenging task and an active area of research since the 1990s and the deregulation of the traditionally monopolistic and government-controlled power sectors. Although it aims at predicting both spot and…
Researchers and electricity sector practitioners frequently require the supply curve of electricity markets and the price elasticity of supply for purposes such as price forecasting, policy analyses or market power assessment. It is common…
In this work we considered several hybrid modelling approaches for forecasting energy spot prices in EPEC market. Hybridization is performed through combining a Naive model, Fourier analysis, ARMA and GARCH models, a mean-reversion and…