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Basics of electricity derivative pricing in competitive markets

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  • Iivo Vehvilainen

Abstract

This paper studies the application of the available financial theory to the deregulated electricity market. The special characteristics of electricity make the market different from all other commodity markets. The paper introduces a coherent framework for the assets and instruments in the electricity markets in the financial tradition. Properties of the instruments that are available in the Scandinavian electricity market are studied in more detail.

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  • Iivo Vehvilainen, 2002. "Basics of electricity derivative pricing in competitive markets," Applied Mathematical Finance, Taylor & Francis Journals, vol. 9(1), pages 45-60.
    • Handle: RePEc:taf:apmtfi:v:9:y:2002:i:1:p:45-60
    DOI: 10.1080/13504860210132879
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Benth, Fred Espen & Koekebakker, Steen, 2008. "Stochastic modeling of financial electricity contracts," Energy Economics, Elsevier, vol. 30(3), pages 1116-1157, May.
    2. Junttila, Juha & Myllymäki, Valtteri & Raatikainen, Juhani, 2018. "Pricing of electricity futures based on locational price differences: The case of Finland," Energy Economics, Elsevier, vol. 71(C), pages 222-237.
    3. Rafal Weron, 2005. "Market price of risk implied by Asian-style electricity options," Econometrics 0502003, University Library of Munich, Germany.
    4. Almut E. D. Veraart & Luitgard A. M. Veraart, 2013. "Risk premia in energy markets," CREATES Research Papers 2013-02, Department of Economics and Business Economics, Aarhus University.
    5. Birkelund, Ole Henrik & Haugom, Erik & Molnár, Peter & Opdal, Martin & Westgaard, Sjur, 2015. "A comparison of implied and realized volatility in the Nordic power forward market," Energy Economics, Elsevier, vol. 48(C), pages 288-294.
    6. Hinderks, W.J. & Wagner, A., 2020. "Factor models in the German electricity market: Stylized facts, seasonality, and calibration," Energy Economics, Elsevier, vol. 85(C).
    7. Rudiger Kiesel & Gero Schindlmayr & Reik Borger, 2009. "A two-factor model for the electricity forward market," Quantitative Finance, Taylor & Francis Journals, vol. 9(3), pages 279-287.
    8. Suvrajeet Sen & Lihua Yu & Talat Genc, 2006. "A Stochastic Programming Approach to Power Portfolio Optimization," Operations Research, INFORMS, vol. 54(1), pages 55-72, February.
    9. Frestad, Dennis, 2008. "Common and unique factors influencing daily swap returns in the Nordic electricity market, 1997-2005," Energy Economics, Elsevier, vol. 30(3), pages 1081-1097, May.
    10. Yucekaya, A., 2022. "Electricity trading for coal-fired power plants in Turkish power market considering uncertainty in spot, derivatives and bilateral contract market," Renewable and Sustainable Energy Reviews, Elsevier, vol. 159(C).
    11. Andreis, Luisa & Flora, Maria & Fontini, Fulvio & Vargiolu, Tiziano, 2020. "Pricing reliability options under different electricity price regimes," Energy Economics, Elsevier, vol. 87(C).
    12. Olga Y. Uritskaya & Vadim M. Uritsky, 2015. "Predictability of price movements in deregulated electricity markets," Papers 1505.08117, arXiv.org.
    13. Daskalakis, George & Markellos, Raphael N., 2009. "Are electricity risk premia affected by emission allowance prices? Evidence from the EEX, Nord Pool and Powernext," Energy Policy, Elsevier, vol. 37(7), pages 2594-2604, July.
    14. Uritskaya, Olga Y. & Uritsky, Vadim M., 2015. "Predictability of price movements in deregulated electricity markets," Energy Economics, Elsevier, vol. 49(C), pages 72-81.
    15. Thomas Deschatre & Olivier F'eron & Pierre Gruet, 2021. "A survey of electricity spot and futures price models for risk management applications," Papers 2103.16918, arXiv.org, revised Jul 2021.
    16. Fred Espen Benth & Jūratė Šaltytė Benth & Steen Koekebakker, 2008. "Stochastic Modeling of Electricity and Related Markets," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 6811, December.
    17. Vehvilainen, Iivo & Pyykkonen, Tuomas, 2005. "Stochastic factor model for electricity spot price--the case of the Nordic market," Energy Economics, Elsevier, vol. 27(2), pages 351-367, March.
    18. George Daskalakis, Lazaros Symeonidis, Raphael N. Markellos, 2015. "Electricity futures prices in an emissions constrained economy: Evidence from European power markets," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    19. Frestad, Dennis, 2012. "Liquidity and dirty hedging in the Nordic electricity market," Energy Economics, Elsevier, vol. 34(5), pages 1341-1355.

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