Swiss Finance Institute at the University of Lugano; Swiss Finance Institute
Universita della Svizzera Italiana - Institute of Finance
October 16, 2002
In this paper we propose an algorithm for pricing derivatives written on electricity in an incomplete market setting. A discrete time model for price dynamics which embodies the main features of electricity price revealed by simple time series analysis is considered. We use jointly Binomial and Monte Carlo methods for pricing under a risk-neutral measure of which we prove the existence.
Number of Pages in PDF File: 15
Keywords: Electricity derivatives, risk-neutral valuation
JEL Classification: G1working papers series
Date posted: May 7, 2002
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