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Market price of risk implied by Asian-style electricity options Author info | Abstract | Publisher info | Download info | Related research | Statistics Rafal Weron (Hugo Steinhaus Center)
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In this paper we propose a jump diffusion type model which recovers the main characteristics of electricity spot price dynamics, including seasonality, mean reversion, and spiky behavior. Calibration of the market price of risk allows for pricing of Asian-type options written on the spot electricity price traded at Nord Pool. The usefulness of the approach is confirmed by out-of-sample tests.
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Paper provided by EconWPA in its series Econometrics with number
0502003.
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Length: 19 pages
Date of creation: 07 Feb 2005Date of revision:
Handle: RePEc:wpa:wuwpem:0502003Note: Type of Document - pdf; pages: 19Contact details of provider: Web page: http://129.3.20.41
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Keywords: Power market ; Electricity price modeling ; Asian option ; Market price of risk ; Derivatives pricing ; Find related papers by JEL classification: C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.: Michael Bierbrauer & Stefan Trueck & Rafal Weron, 2005.
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Econometrics
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"Pricing in Electricity Markets: a Mean Reverting Jump Diffusion Model with Seasonality ,"
Birkbeck Working Papers in Economics and Finance
0507, Birkbeck, Department of Economics, Mathematics & Statistics.
[Downloadable!]
Other versions:
Alvaro Cartea & Marcelo_Gustavo Figueroa, 2005.
"Pricing in Electricity Markets: a Mean Reverting Jump Diffusion Model with Seasonality ,"
Finance
0501011, EconWPA, revised 10 Sep 2005.
[Downloadable!] Álvaro Cartea & Marcelo Figueroa, 2005.
"Pricing in Electricity Markets: A Mean Reverting Jump Diffusion Model with Seasonality ,"
Applied Mathematical Finance ,
Taylor and Francis Journals, vol. 12(4), pages 313-335, December.
[Downloadable!] (restricted) Vasicek, Oldrich, 1977.
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Hansen, Lars Peter, 1982.
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Econometrica ,
Econometric Society, vol. 50(4), pages 1029-54, July.
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Iivo Vehvilainen, 2002.
"Basics of electricity derivative pricing in competitive markets ,"
Applied Mathematical Finance ,
Taylor and Francis Journals, vol. 9(1), pages 45-60, March.
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Ingve Simonsen, 2001.
"Measuring Anti-Correlations in the Nordic Electricity Spot Market by Wavelets ,"
Quantitative Finance Papers
cond-mat/0108033, arXiv.org, revised Apr 2003.
[Downloadable!]
Huisman, Ronald & Mahieu, Ronald, 2003.
"Regime jumps in electricity prices ,"
Energy Economics ,
Elsevier, vol. 25(5), pages 425-434, September.
[Downloadable!] (restricted)
Other versions:
Huisman, R. & Mahieu, R.J., 2001.
"Regime Jumps in Electricity Prices ,"
Research Paper
ERS-2001-48-F&A Revision_, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
[Downloadable!] Geman, Hélyette & Roncoroni, Andrea, 2003.
"A Class of Marked Point Processes for Modelling Electricity Prices ,"
ESSEC Working Papers
DR 03004, ESSEC Research Center, ESSEC Business School.
[Downloadable!]
Rafal Weron & Ingve Simonsen & Piotr Wilman, 2003.
"Modeling highly volatile and seasonal markets: evidence from the Nord Pool electricity market ,"
Econometrics
0303007, EconWPA.
[Downloadable!]
Full
references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
Trueck, Stefan & Weron, Rafal & Wolff, Rodney, 2007.
"Outlier Treatment and Robust Approaches for Modeling Electricity Spot Prices ,"
MPRA Paper
4711, University Library of Munich, Germany.
[Downloadable!]
Sandro Sapio, 2008.
"Volatility-price relationships in power exchanges: A demand-supply analysis ,"
LEM Papers Series
2008/07, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
[Downloadable!]
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