A New Model for Pricing Wind Power Futures
"A new approach to wind power futures pricing", Decisions in Economics and Finance (DEAF), Vol. 44, 1235-1252, December 2021
17 Pages Posted: 22 Apr 2019 Last revised: 18 Feb 2022
Date Written: March 25, 2019
We propose a new model for the pricing of wind power futures written on the wind power production index. Our approach is based on an arithmetic multi-factor pure-jump Ornstein-Uhlenbeck setup with time-dependent coefficients. We express the wind power production index and the corresponding futures price in terms of Fourier integrals and derive the related time dynamics. We conclude the paper by an investigation of the so-called risk premium associated with our wind power model.
Keywords: wind power futures, wind power production index, arithmetic multi-factor model, pure-jump Ornstein-Uhlenbeck process, Lévy-type process, Poisson random measure, Fourier transform, stochastic differential equation, Doléans-Dade exponential, risk premium
JEL Classification: C02, D52, G13
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