Electricity Options and Additional Information

25 Pages Posted: 21 Jul 2012

See all articles by Richard Biegler-König

Richard Biegler-König

Evonik Steag GmbH; University of Duisburg-Essen - Department of Economics and Business Administration

Fred Espen Benth

University of Oslo

Ruediger Kiesel

University of Duisburg-Essen - Faculty of Economic Science

Date Written: January 15, 2012

Abstract

Electricity markets feature a non-storable underlying, which implies the break down of traditional cash-and-carry arguments as well as the well-known spot-forward relationship. We introduce the notion of information premium to describe the influence of future information - such as planned power plant maintenance - on the relationship between forward contracts and the spot market. In a recent paper we designed a statistical test to show the existence of the premia. Here, we examine how the presence of an information premium alters the prices of options on forwards. Also, we apply the technique of enlargement of filtrations to show how to calculate the premium specifically for certain types of information and delivery periods. Furthermore, we illustrate the results in various stylised examples.

Keywords: Information premium, Electricity markets, Forwards, Options, Enlargement of Filtrations

JEL Classification: C19, G13, G14, Q40

Suggested Citation

Biegler-König, Richard and Benth, Fred Espen and Kiesel, Ruediger, Electricity Options and Additional Information (January 15, 2012). Available at SSRN: https://ssrn.com/abstract=2114177 or http://dx.doi.org/10.2139/ssrn.2114177

Richard Biegler-König (Contact Author)

Evonik Steag GmbH ( email )

Rellinghauser Straße 1-11
Essen, 45128
Germany

University of Duisburg-Essen - Department of Economics and Business Administration ( email )

Universitätsstr. 9
Essen, 45141
Germany

Fred Espen Benth

University of Oslo ( email )

Center of Mathematics for Applications
Oslo, N-0317
Norway

Ruediger Kiesel

University of Duisburg-Essen - Faculty of Economic Science ( email )

Essen, 45117
Germany

HOME PAGE: http://www.lef.wiwi.uni-due.de/

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