A Numerical Method for Pricing Electricity Derivatives for Jump-Diffusion Processes Based on Continuous Time Lattices
AbstractWe present a numerical method for pricing derivatives on electricity prices. The method is based on approximating the generator of the underlying process and can be applied for stochastic processes that are combinations of diusions and jump processes. The method is accurate even in the case of processes with fast mean-reversion and jumps of large magnitude. We illustrate the speed and accuracy of the method by pricing European and Bermudan options and calculating the hedge ratios of European options for the Geman-Roncoroni model for electricity prices.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 5245.
Date of creation: 01 May 2006
Date of revision:
Electricity derivatives; operator methods;
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
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- Geman, Hélyette & Roncoroni, Andréa, 2006. "Understanding the Fine Structure of Electricity Prices," Economics Papers from University Paris Dauphine 123456789/1433, Paris Dauphine University.
- H�lyette Geman & Andrea Roncoroni, 2006. "Understanding the Fine Structure of Electricity Prices," The Journal of Business, University of Chicago Press, vol. 79(3), pages 1225-1262, May.
- Farrell, Niall & Devine, Mel & Lee, William & Gleeson, James & Lyons, Seán, 2013. "Specifying An Efficient Renewable Energy Feed-in Tariff," MPRA Paper 49777, University Library of Munich, Germany.
- Kourouvakalis, Stylianos, 2008. "Méthodes numériques pour la valorisation d'options swings et autres problèmes sur les matières premières," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/116 edited by Geman, Hélyette, December.
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