Electricity Derivatives Pricing with Forward-Looking Information

57 Pages Posted: 19 Feb 2013 Last revised: 29 Mar 2016

See all articles by Roland Füss

Roland Füss

University of St. Gallen - School of Finance

Steffen Mahringer

University of St.Gallen - Swiss Institute of Banking and Finance

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management; University of Reading - ICMA Centre

Date Written: April 1, 2015

Abstract

In order to increase overall transparency on key operational information, power transmission system operators publish an increasing amount of fundamental data, including forecasts of electricity demand and available capacity. We develop a fundamental model for electricity prices which lends itself well to integrating such forecasts, while retaining ease of implementation and tractability to allow for analytic derivatives pricing formulae. In an extensive futures pricing study, the pricing performance of our model is shown to further improve based on the inclusion of electricity demand and capacity forecasts, thus confirming the importance of forward-looking information for electricity pricing.

Keywords: Electricity Futures, Fundamental Model, Derivatives Pricing, Forward-looking Information, Enlargement of Filtrations

JEL Classification: G12, G13, Q4, Q41

Suggested Citation

Füss, Roland and Mahringer, Steffen and Prokopczuk, Marcel, Electricity Derivatives Pricing with Forward-Looking Information (April 1, 2015). Journal of Economic Dynamics and Control, 58, September, 34-57 (2015). Available at SSRN: https://ssrn.com/abstract=2219855 or http://dx.doi.org/10.2139/ssrn.2219855

Roland Füss (Contact Author)

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland
+41 (0)71 224 70 42 (Phone)
+41 (0)71 224 70 88 (Fax)

HOME PAGE: http://www.sbf.unisg.ch/en/Lehrstuehle/Lehrstuhl_Fuess.aspx

Steffen Mahringer

University of St.Gallen - Swiss Institute of Banking and Finance ( email )

Varnbuelstr. 14
Saint Gallen, St. Gallen CH-9000
Switzerland

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

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