Pricing in Electricity Markets: A Mean Reverting Jump Diffusion Model with Seasonality
University of Oxford; University of Oxford - Oxford-Man Institute of Quantitative Finance
Marcelo G. Figueroa
University of London - Birkbeck College
Applied Mathematical Finance, Vol. 12, No. 4, December 2005
In this paper we present a mean-reverting jump diffusion model for the electricity spot price. We obtain a closed-form solution for forward contracts and calibrate it to market data from England and Wales. Finally, based on the calibrated forward curve we present months, quarters, and seasons-ahead forward surfaces.
Number of Pages in PDF File: 29
Keywords: Energy derivatives, electricity, forward curve
JEL Classification: G12, G13
Date posted: October 4, 2006
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