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The valuation of clean spread options: linking electricity, emissions and fuels

Listed author(s):
  • René Carmona
  • Michael Coulon
  • Daniel Schwarz

The purpose of the paper is to present a new pricing method for clean spread options, and to illustrate its main features on a set of numerical examples produced by a dedicated computer code. The novelty of the approach is embedded in the use of a structural model as opposed to reduced-form models which fail to capture properly the fundamental dependencies between the economic factors entering the production process.

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File URL: http://hdl.handle.net/10.1080/14697688.2012.750733
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Article provided by Taylor & Francis Journals in its journal Quantitative Finance.

Volume (Year): 12 (2012)
Issue (Month): 12 (December)
Pages: 1951-1965

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Handle: RePEc:taf:quantf:v:12:y:2012:i:12:p:1951-1965
DOI: 10.1080/14697688.2012.750733
Contact details of provider: Web page: http://www.tandfonline.com/RQUF20

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References listed on IDEAS
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  1. Seifert, Jan & Uhrig-Homburg, Marliese & Wagner, Michael, 2008. "Dynamic behavior of CO2 spot prices," Journal of Environmental Economics and Management, Elsevier, vol. 56(2), pages 180-194, September.
  2. Cartea, Álvaro & Villaplana, Pablo, 2008. "Spot price modeling and the valuation of electricity forward contracts: The role of demand and capacity," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2502-2519, December.
  3. Pirrong, Craig & Jermakyan, Martin, 2008. "The price of power: The valuation of power and weather derivatives," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2520-2529, December.
  4. repec:dau:papers:123456789/2267 is not listed on IDEAS
  5. Margrabe, William, 1978. "The Value of an Option to Exchange One Asset for Another," Journal of Finance, American Finance Association, vol. 33(1), pages 177-186, March.
  6. Rene Carmona & Michael Coulon & Daniel Schwarz, 2012. "Electricity price modeling and asset valuation: a multi-fuel structural approach," Papers 1205.2299, arXiv.org.
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