Pricing in Electricity Markets: A Mean Reverting Jump Diffusion Model with Seasonality
29 Pages Posted: 4 Oct 2006
In this paper we present a mean-reverting jump diffusion model for the electricity spot price. We obtain a closed-form solution for forward contracts and calibrate it to market data from England and Wales. Finally, based on the calibrated forward curve we present months, quarters, and seasons-ahead forward surfaces.
Keywords: Energy derivatives, electricity, forward curve
JEL Classification: G12, G13
Suggested Citation: Suggested Citation