Modelling Electricity Forward Markets by Ambit Fields

45 Pages Posted: 5 Oct 2011

See all articles by Ole E. Barndorff-Nielsen

Ole E. Barndorff-Nielsen

University of Aarhus - Thiele Centre, Department of Mathematical Sciences

Fred Espen Benth

University of Oslo

Almut Veraart

Imperial College London; CREATES

Date Written: September 26, 2011

Abstract

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

Barndorff-Nielsen, Ole E. and Benth, Fred Espen and Veraart, Almut, Modelling Electricity Forward Markets by Ambit Fields (September 26, 2011). Available at SSRN: https://ssrn.com/abstract=1938704 or http://dx.doi.org/10.2139/ssrn.1938704

Ole E. Barndorff-Nielsen

University of Aarhus - Thiele Centre, Department of Mathematical Sciences ( email )

Ny Munkegade
Aarhus, DK 8000
Denmark

Fred Espen Benth

University of Oslo ( email )

Center of Mathematics for Applications
Oslo, N-0317
Norway

Almut Veraart (Contact Author)

Imperial College London ( email )

Department of Mathematics
180 Queen's Gate
London, SW7 2AZ

CREATES ( email )

Aarhus University
DK-8000 Aarhus C
Denmark

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