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Modelling electricity forward markets by ambit fields

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Author Info

  • Ole E. Barndorff–Nielsen

    ()
    (Thiele Center, Department of Mathematical Sciences and CREATES)

  • Fred Espen Benth

    ()
    (Centre of Mathematics for Applications, University of Oslo and Faculty of Economics University of Agder)

  • Almut E. D. Veraart

    ()
    (CREATES, School of Economics and Management Aarhus University)

Abstract

This paper proposes a new modelling framework for electricity forward markets, which is based on ambit fields. The new model can capture many of the stylised facts observed in energy markets. One of the main differences to the traditional models lies in the fact that we do not model the dynamics, but the forward price directly, where we focus on models which are stationary in time. We give a detailed account on the probabilistic properties of the new model and we discuss martingale conditions and change of measure within the new model class. Also, we derive a model for the spot price which is obtained from the forward model through a limiting argument.

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Bibliographic Info

Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2010-41.

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Length: 33
Date of creation: 20 Aug 2010
Date of revision:
Handle: RePEc:aah:create:2010-41

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Web page: http://www.econ.au.dk/afn/

Related research

Keywords: Electricity markets; forward prices; random fields; ambit fields; stochastic volatility.;

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Cited by:
  1. Ole E. Barndorff-Nielsen & Fred Espen Benth & Almut E. D. Veraart, 2013. "Modelling energy spot prices by volatility modulated L\'{e}vy-driven Volterra processes," Papers 1307.6332, arXiv.org.

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