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Modelling energy forward prices


  • Joanna Janczura
  • Aleksander Weron


The main purpose of the paper is to present, how derivatives valuing methodology, known from financial and commodities markets, can be applied to the electricity market. We compare an application of three recent models. We start with the convenience yield approach, then we analyse the application of the interest rates methodology, proposed by Hinz et al. (2005). Finally, the last approach built by Bjerksund et al (2000) on direct modelling of the forward price dynamics is discussed. We also calibrate the theoretical models to the Nord Pool market data. The empirical analysis shows how these models can be used for evaluation of options prices. Moreover, data study gives an evidence of the seasonal term structure of the returns variance.

Suggested Citation

  • Joanna Janczura & Aleksander Weron, 2008. "Modelling energy forward prices," HSC Research Reports HSC/08/03, Hugo Steinhaus Center, Wroclaw University of Technology.
  • Handle: RePEc:wuu:wpaper:hsc0803

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    File Function: Original draft, 2008
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    References listed on IDEAS

    1. Les Clewlow & Chris Strickland, 1999. "Valuing Energy Options in a One Factor Model Fitted to Forward Prices," Research Paper Series 10, Quantitative Finance Research Centre, University of Technology, Sydney.
    2. Ewa Broszkiewicz-Suwaj & Aleksander Weron, 2005. "Calibration of the multifactor HJM model for energy market," HSC Research Reports HSC/05/03, Hugo Steinhaus Center, Wroclaw University of Technology.
    3. repec:dau:papers:123456789/607 is not listed on IDEAS
    4. Rafal Weron, 2006. "Modeling and Forecasting Electricity Loads and Prices: A Statistical Approach," HSC Books, Hugo Steinhaus Center, Wroclaw University of Technology, number hsbook0601, June.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Forward contracts; Nord Pool financial market; Options valuation; Volatility modelling;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices


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