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dc.date.accessioned2013-03-12T08:16:28Z
dc.date.available2013-03-12T08:16:28Z
dc.date.issued2005en_US
dc.date.submitted2009-11-25en_US
dc.identifier.urihttp://hdl.handle.net/10852/10579
dc.description.abstractWe discuss the modeling of electricity contracts traded in many deregulated power markets. These forward/futures type contracts deliver (either physically or financially) electricity over a specified time period, and is frequently referred to as swaps since they in effect represent an exchange of fixed for floating electricity price. We provide a thorough discussion of how the Nordic power market Nord Pool is organized, in order to motivate a Heath-Jarrow-Morton approach to model swap prices since the notion of a spot price is not easily defined. For general stochastic dynamical models, we connect the spot price, the fixed-delivery forward price and the swap price, and analyze two different ways to apply the Heath-Jarrow-Morton approach to swap pricing: Either one specifies a dynamics for the non-existing fixed-delivery forwards and derives the implied swap dynamics, or one models directly on the swaps. The former is shown to lead to quite complicated stochastic models for the swap price, even when the forward dynamics is simple. The latter has some theoretical problems due to a no-arbitrage condition that has to be satisfied for swaps with overlapping delivery period. To overcome this problem, we suggest a practical modeling approach where we suppose that the market only consists of non-overlapping swaps, and model these directly. A thorough empirical study is performed using data collected from Nord Pool. Our investigations demonstrate that it is possible to state reasonable models for the swap price dynamics which is analytically tractable for risk management and option pricing purposes, however, this is an area of further research.eng
dc.language.isoengen_US
dc.publisherMatematisk Institutt, Universitetet i Oslo
dc.relation.ispartofPreprint series. Pure mathematics http://urn.nb.no/URN:NBN:no-8076en_US
dc.relation.urihttp://urn.nb.no/URN:NBN:no-8076
dc.rights© The Author(s) (2005). This material is protected by copyright law. Without explicit authorisation, reproduction is only allowed in so far as it is permitted by law or by agreement with a collecting society.
dc.titleSTOCHASTIC MODELING OF FINANCIAL ELECTRICITY CONTRACTSen_US
dc.typeResearch reporten_US
dc.date.updated2009-11-25en_US
dc.rights.holderCopyright 2005 The Author(s)
dc.creator.authorBenth, Fred Espenen_US
dc.creator.authorKoekebakker, Steenen_US
dc.subject.nsiVDP::410en_US
dc.identifier.urnURN:NBN:no-23623en_US
dc.type.documentForskningsrapporten_US
dc.identifier.duo97293en_US
dc.identifier.fulltextFulltext https://www.duo.uio.no/bitstream/handle/10852/10579/1/pm24-05.pdf


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