Pricing Multiple Interruptible-Swing Contracts
AbstractIn this article we price a multiple-interruptible contract for the electricity market in England and Wales under a mean-reverting jump-diffusion model with seasonality. We do so by combining forward contracts with a swing option which can be exercised a pre-specified number of times. We price this swing option by means of an extension of the Least-Squares Monte Carlo methodology for American options. We additionally compute the lower and upper bounds for this contract. For the computation of the lower bound we provide a semi-analytical formula which reduces greatly the required computational time.
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Bibliographic InfoPaper provided by Birkbeck, Department of Economics, Mathematics & Statistics in its series Birkbeck Working Papers in Economics and Finance with number 0606.
Date of creation: Jun 2006
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