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Managing Electricity Risk

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  • Giovanni Barone-Adesi
  • Andrea Gigli

Abstract

In this paper we propose an algorithm for pricing derivatives written about electricity in an incomplete market setting. A discrete time model for price dynamics which embodies the main features of electricity price revealed by simple time series analysis is considered. We use, jointly, Binomial and Monte Carlo methods for pricing under a risk-neutral measure of which we prove the existence. Copyright Banca Monte dei Paschi di Siena SpA, 2003

Suggested Citation

  • Giovanni Barone-Adesi & Andrea Gigli, 2003. "Managing Electricity Risk," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 32(2), pages 283-294, July.
    • Handle: RePEc:bla:ecnote:v:32:y:2003:i:2:p:283-294
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    Cited by:

    1. Chan, Kam Fong & Gray, Philip & van Campen, Bart, 2008. "A new approach to characterizing and forecasting electricity price volatility," International Journal of Forecasting, Elsevier, vol. 24(4), pages 728-743.
    2. Moreno, Manuel & Serrano, Pedro & Stute, Winfried, 2011. "Statistical properties and economic implications of jump-diffusion processes with shot-noise effects," European Journal of Operational Research, Elsevier, vol. 214(3), pages 656-664, November.

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