Modelling Electricity Forward Markets by Ambit Fields
45 Pages Posted: 5 Oct 2011
Date Written: September 26, 2011
This paper proposes a new modelling framework for electricity forward markets based on so-called ambit fields. The new model can capture many of the stylised facts observed in energy markets and is highly analytically tractable. We give a detailed account on the probabilistic properties of the new type of model, and we discuss martingale conditions, option pricing and change of measure within the new model class. Also, we derive a model for the typically stationary spot price, which is obtained from the forward model through a limiting argument.
Keywords: Electricity Markets, Forward Prices, Random Fields, Ambit Fields, Levy Basis, Samuelson Effect, Stochastic Volatility
JEL Classification: C10, C22, C50, G10
Suggested Citation: Suggested Citation