Exercising Flexible Load Contracts: Two Simple Strategies

Applied Stochastic Models in Business & Industry, Vol. 24, No. 2, pp. 93-107, March/April 2008

Posted: 13 Jun 2008

See all articles by Petter Bjerksund

Petter Bjerksund

Norwegian School of Economics (NHH) - Department of Business and Management Science

Bjarte Myksvoll

Viz Risk Management Services AS

Gunnar Stensland

Norwegian School of Economics (NHH) - Department of Business and Management Science

Abstract

A flexible load contract is a type of swing option where the holder has the right to receive a given quantity of electricity within a specified period, at a fixed maximum effect (delivery rate). The contract is flexible, in the sense that delivery (the take hours) is called one day in advance. We investigate two simple strategies for managing flexible load contracts, where both use price information from the forward market. For 10 contracts traded in the period 1997-2001, we calculate the performance of the two strategies and compare with the reported performance of one complex dynamic programming approach as well as the actual results obtained by three anonymous market participants. The comparison indicates that our simple computer-efficient strategies perform better on average and produces more stable results.

Suggested Citation

Bjerksund, Petter and Myksvoll, Bjarte and Stensland, Gunnar, Exercising Flexible Load Contracts: Two Simple Strategies. Available at SSRN: https://ssrn.com/abstract=1145195

Petter Bjerksund (Contact Author)

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Bjarte Myksvoll

Viz Risk Management Services AS ( email )

P.B 6216
Bergen, NO-5893
Norway

Gunnar Stensland

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

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