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Energy Derivatives with Volume Controls

In: Handbook of Risk Management in Energy Production and Trading

Author

Listed:
  • Fred Espen Benth

    (University of Oslo)

  • Marcus Eriksson

    (University of Oslo)

Abstract

We analyse two classes of power derivatives with volume control, tolling agreements and flexible load contracts. Under certain assumptions, we can price a tolling agreement by resorting to theory of flexible load contracts, when using the fuel cost as numeraire in the power price. Tolling agreements can be priced as a strip of spread options under simple set of controls. Finally, we prove a general theory based on dynamic programming for these two classes of derivatives. We base our theory on price dynamics driven by Brownian motion.

Suggested Citation

  • Fred Espen Benth & Marcus Eriksson, 2013. "Energy Derivatives with Volume Controls," International Series in Operations Research & Management Science, in: Raimund M. Kovacevic & Georg Ch. Pflug & Maria Teresa Vespucci (ed.), Handbook of Risk Management in Energy Production and Trading, edition 127, chapter 0, pages 413-432, Springer.
    • Handle: RePEc:spr:isochp:978-1-4614-9035-7_16
    DOI: 10.1007/978-1-4614-9035-7_16
    as

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