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1 How are Electricity Futures Contracts Priced? A Preliminary Investigation

By Russell Poskitt and Stephen Tomlinson

Abstract

This paper examines the relevance of the cost of carry model to the pricing of the electricity futures contract in New Zealand. Analysis of the data indicates that the spot price is substantially more volatile than the futures price. OLS regression analysis provides little evidence in support of the cost of carry model, using either levels data or first difference data. The evidence strongly suggests the futures price moves independently of the theoretical futures price derived from the cost of carry model. There is some evidence that the futures prices is driven by past levels of the spot price. 1

Year: 2011
OAI identifier: oai:CiteSeerX.psu:10.1.1.196.2959
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