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We introduce a new and highly tractable structural model for spot and derivative prices in electricity markets. Using a stochastic model of the bid stack, we translate the demand for power and the prices of generating fuels into electricity…
This paper focuses on the valuation and hedging of gas storage facilities, using a spot-based valuation framework coupled with a financial hedging strategy implemented with futures contracts. The first novelty consist in proposing a model…
Based on the concept of self-decomposable random variables we discuss the application of a model for a pair of dependent Poisson processes to energy facilities. Due to the resulting structure of the jump events we can see the…
The recent liberalization of the electricity and gas markets has resulted in the growth of energy exchanges and modelling problems. In this paper, we modelize jointly gas and electricity spot prices using a mean-reverting model which fits…
We propose a new structural model that can compute the electricity spot and forward prices in two coupled markets with limited interconnection and multiple fuels. We choose a structural approach in order to represent some key…
This review presents the set of electricity price models proposed in the literature since the opening of power markets. We focus on price models applied to financial pricing and risk management. We classify these models according to their…
The purpose of the paper is to present a new pricing method for clean spread options, and to illustrate its main features on a set of numerical examples produced by a dedicated computer code. The novelty of the approach is embedded in the…
In this work we analyse a stochastic control problem for the valuation of a natural gas power station while taking into account operating characteristics. Both electricity and gas spot price processes exhibit mean-reverting spikes and…
We derive the price of a spread option based on two assets which follow a bivariate volatility modulated Volterra process dynamics. Such a price dynamics is particularly relevant in energy markets, modelling for example the spot price of…
We consider the pricing of energy spread options for spot prices following an exponential Ornstein-Uhlenbeck process driven by a sum of independent multivariate variance gamma processes, which gives rise to mean-reverting, infinite activity…
Electricity market mechanisms designed to steer sustainable generation of electricity play an important role for the energy transition intended to mitigate climate change. One of the major problems is to complement volatile renewable energy…
There are several approaches to modeling and forecasting time series as applied to prices of commodities and financial assets. One of the approaches is to model the price as a non-stationary time series process with heteroscedastic…
In this paper we study recent developments in the approximation of the spread option pricing. As the Kirk\'s Approximation is extremely flawed in the cases when the correlation is very high, we explore a recent development that allows…
We study historical calibration of one- and two-factor models that are known to describe relatively well the dynamics of energy underlyings such as spot and index natural gas or oil prices at different physical locations or regional power…
Reliability Options are capacity remuneration mechanisms aimed at enhancing security of supply in electricity systems. They can be framed as call options on electricity sold by power producers to System Operators. This paper provides a…
This paper examines the problem of pricing spread options under some models with jumps driven by Compound Poisson Processes and stochastic volatilities in the form of Cox-Ingersoll-Ross(CIR) processes. We derive the characteristic function…
This paper presents an analytical method for calculating the operational value of an energy storage device under multi-stage price uncertainties. Our solution calculates the storage value function from price distribution functions directly…
This paper introduces an information-based model for the pricing of storable commodities such as crude oil and natural gas. The model uses the concept of market information about future supply and demand as a basis for valuation. Physical…
In this paper we propose a quadratic programming model that can be used for calculating the term structure of electricity prices while explicitly modeling startup costs of power plants. In contrast to other approaches presented in the…
Consider the problem of pricing options on forwards in energy markets, when spot prices follow a geometric multi-factor model in which several rates of mean reversion appear. In this paper we investigate the role played by slow mean…