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Pricing in Electricity Markets: a Mean Reverting Jump Diffusion Model with Seasonality

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Author Info
Alvaro Cartea (Birkbeck College, University of London)
Marcelo_Gustavo Figueroa (Birkbeck College, University of London)

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Abstract

In this paper we present a mean-reverting jump diffusion model for the electricity spot price. We obtain a closed-form solution for forward contracts and calibrate it to market data from England and Wales. Finally, based on the calibrated forward curve we present months, quarters, and seasons-ahead forward surfaces.

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File URL: http://129.3.20.41/eps/fin/papers/0501/0501011.pdf
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Publisher Info
Paper provided by EconWPA in its series Finance with number 0501011.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length: 28 pages
Date of creation: 21 Jan 2005
Date of revision: 10 Sep 2005
Handle: RePEc:wpa:wuwpfi:0501011

Note: Type of Document - pdf; pages: 28
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Web page: http://129.3.20.41

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Related research
Keywords: Energy derivatives mean reversion jump diffusion electricity spot and forward.

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G - Financial Economics

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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.:
  1. Fred Espen Benth & Lars Ekeland & Ragnar Hauge & BjøRn Fredrik Nielsen, 2003. "A note on arbitrage-free pricing of forward contracts in energy markets," Applied Mathematical Finance, Taylor and Francis Journals, vol. 10(4), pages 325-336, December. [Downloadable!] (restricted)
  2. Darrell Duffie & Jun Pan & Kenneth Singleton, 2000. "Transform Analysis and Asset Pricing for Affine Jump-Diffusions," Econometrica, Econometric Society, vol. 68(6), pages 1343-1376, November.
  3. Ball, Clifford A & Torous, Walter N, 1985. " On Jumps in Common Stock Prices and Their Impact on Call Option Pricing," Journal of Finance, American Finance Association, vol. 40(1), pages 155-73, March. [Downloadable!] (restricted)
  4. Álvaro Escribano & Juan Ignacio Peña & Pablo Villaplana, 2002. "Modeling Electricity Prices: International Evidence," Economics Working Papers we022708, Universidad Carlos III, Departamento de Economía. [Downloadable!]
  5. Schwartz, Eduardo S, 1997. " The Stochastic Behavior of Commodity Prices: Implications for Valuation and Hedging," Journal of Finance, American Finance Association, vol. 52(3), pages 923-73, July. [Downloadable!] (restricted)
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.)

  1. Massimiliano Serati & Matteo Manera & Michele Plotegher, 2008. "Modelling electricity prices: from the state of the art to a draft of a new proposal," LIUC Papers in Economics 210, Cattaneo University (LIUC). [Downloadable!]
  2. Alvaro Cartea & Thomas Williams, 2006. "UK Gas Markets: the Market Price of Risk and Applications to Multiple Interruptible Supply Contracts," Birkbeck Working Papers in Economics and Finance 0608, Birkbeck, School of Economics, Mathematics & Statistics. [Downloadable!]
    Other versions:
  3. Alvaro Cartea & Pablo Villaplana Conde, 2007. "Spot Price Modeling and the Valuation of Electricity Forward Contracts: the Role of Demand and Capacity," Birkbeck Working Papers in Economics and Finance 0718, Birkbeck, School of Economics, Mathematics & Statistics. [Downloadable!]
  4. Alvaro Cartea & Marcelo G. Figueroa & Helyette Geman, 2008. "Modelling Electricity Prices with Forward Looking Capacity Constraints," Birkbeck Working Papers in Economics and Finance 0802, Birkbeck, School of Economics, Mathematics & Statistics. [Downloadable!]
  5. Carmen Berné Manero & Manuel Salvador Figueras & Noemí Martínez Caraballo & Pilar Gargallo Valero, 2008. "Un análisis bayesiano de la variación temporal del escenario de compra de los hogares," Working Papers. Serie EC 2008-05, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
  6. repec:qut:auncer:2008-5 is not listed on IDEAS
  7. Rafal Weron, 2005. "Market price of risk implied by Asian-style electricity options," Econometrics 0502003, EconWPA. [Downloadable!]
  8. Marcelo G. Figueroa, 2006. "Pricing Multiple Interruptible-Swing Contracts," Birkbeck Working Papers in Economics and Finance 0606, Birkbeck, School of Economics, Mathematics & Statistics. [Downloadable!]
  9. Alexander Boogert & Dominique Dupont, 2007. "When Supply Meets Demand: The Case of Hourly Spot Electricity Prices," Birkbeck Working Papers in Economics and Finance 0707, Birkbeck, School of Economics, Mathematics & Statistics. [Downloadable!]
  10. Hipòlit Torró & Julio Lucia, 2008. "Short-term electricity futures prices: Evidence on the time-varying risk premium," Working Papers. Serie EC 2008-08, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
  11. Fred Benth & Jurate Saltyte-Benth, 2006. "Analytical Approximation for the Price Dynamics of Spark Spread Options," Studies in Nonlinear Dynamics & Econometrics, Berkeley Electronic Press, vol. 10(3), pages 1355-1355. [Downloadable!] (restricted)
  12. Fred Espen Benth & Alvaro Cartea & Ruediger Kiesel, 2006. "Pricing Forward Contracts in Power Markets by the Certainty Equivalence Principle: Explaining the Sign of the Market Risk Premium," Birkbeck Working Papers in Economics and Finance 0611, Birkbeck, School of Economics, Mathematics & Statistics. [Downloadable!]
  13. 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!]
  14. Reik H. Boerger & Alvaro Cartea & Ruediger Kiesel & Gero Schindlmayr, 2007. "A Multivariate Commodity Analysis and Applications to Risk Management," Birkbeck Working Papers in Economics and Finance 0709, Birkbeck, School of Economics, Mathematics & Statistics. [Downloadable!]
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