An empirical study of the information premium on electricity markets
AbstractDue to the non-storability of electricity and the resulting lack of arbitrage-based arguments to price electricity forward contracts, a significant time-varying risk premium is exhibited. Using EEX data during the introduction of emission certificates and the German “Atom Moratorium” we show that a significant part of the risk premium in electricity forwards is due to different information sets in spot and forward markets. In order to show the existence of the resulting information premium and to analyse its size we design an empirical method based on techniques relating to enlargement of filtrations and the structure of Hilbert spaces.
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Bibliographic InfoArticle provided by Elsevier in its journal Energy Economics.
Volume (Year): 36 (2013)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/eneco
Electricity markets; Risk premium; Information premium; Spot–forward relationship; Enlargement of filtrations; Gaussian and non-Gaussian Ornstein–Uhlenbeck processes; Hilbert space representation;
Find related papers by JEL classification:
- C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Other
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
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- Füss, Roland & Mahringer, Steffen & Prokopczuk, Marcel, 2013. "Electricity Derivatives Pricing with Forward-Looking Information," Working Papers on Finance 1317, University of St. Gallen, School of Finance.
- Andreas Groll & Brenda López-Cabrera & Thilo Meyer-Brandis, 2014. "A consistent two-factor model for pricing temperature derivatives," SFB 649 Discussion Papers SFB649DP2014-006, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
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