A two-factor model for the electricity forward market
This paper provides a two-factor model for electricity futures that captures the main features of the market and fits the term structure of volatility. The approach extends the one-factor model of Clewlow and Strickland to a two-factor model and modifies it to make it applicable to the electricity market. We will particularly deal with the existence of delivery periods in the underlying futures. Additionally, the model is calibrated to options on electricity futures and its performance for practical application is discussed.
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Volume (Year): 9 (2009)
Issue (Month): 3 ()
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