In this paper we derive power futures prices from a two-factor spot model being a generalization of the classical Schwartz–Smith commodity dynamics. We include non-Gaussian effects by introducing Lévy processes as the ...

In electricity markets, it is sensible to use a two-factor model with mean reversion for spot prices. One of the factors is an Ornstein–Uhlenbeck (OU) process driven by a Brownian motion and accounts for the small variations. ...

In a market driven by a Lévy martingale, we consider a claim x. We study the problem of minimal variance hedging and we give an explicit formula for the minimal variance portfolio in terms of Malliavin derivatives. We ...

The aim of this paper is to study pricing of weather insurance contracts based on temperature indices. Three different pricing methods are analysed: the classical burn approach, index modelling and temperature modelling. ...