13,750 research outputs found
A model for hedging load and price risk in the Texas electricity market
Energy companies with commitments to meet customersā daily electricity demands face the problem of hedging load and price risk. We propose a joint model for load and price dynamics, which is motivated by the goal of facilitating optimal hedging decisions, while also intuitively capturing the key features of the electricity market. Driven by three stochastic factors including the load process, our power price model allows for the calculation of closed-form pricing formulas for forwards and some options, products often used for hedging purposes. Making use of these results, we illustrate in a simple example the hedging benefit of these instruments, while also evaluating the performance of the model when fitted to the Texas electricity market
Joint Modelling of Gas and Electricity spot prices
The recent liberalization of the electricity and gas markets has resulted in
the growth of energy exchanges and modelling problems. In this paper, we
modelize jointly gas and electricity spot prices using a mean-reverting model
which fits the correlations structures for the two commodities. The dynamics
are based on Ornstein processes with parameterized diffusion coefficients.
Moreover, using the empirical distributions of the spot prices, we derive a
class of such parameterized diffusions which captures the most salient
statistical properties: stationarity, spikes and heavy-tailed distributions.
The associated calibration procedure is based on standard and efficient
statistical tools. We calibrate the model on French market for electricity and
on UK market for gas, and then simulate some trajectories which reproduce well
the observed prices behavior. Finally, we illustrate the importance of the
correlation structure and of the presence of spikes by measuring the risk on a
power plant portfolio
An Options Pricing Approach for CO2 Allowances in the EU ETS
If firms are unable to fully control their emissions, the cap in a permit market may be exceeded. Using stochastic aggregate emissions as the underlying I derive an options pricing formula that expresses the permit price as a function of the penalty for noncompliance and the probability of a binding cap. I apply my model to the EU ETS, where rapid market setup made it difficult for firms to adjust their production technology in time for phase 1. The model fits the data well, implying that the permit price was driven by firms hedging against stochastic emissions rather than marginal abatement costs.Permit markets, air pollution, climate change, CO2, options pricing, EU ETS
The History of the Quantitative Methods in Finance Conference Series. 1992-2007
This report charts the history of the Quantitative Methods in Finance (QMF) conference from its beginning in 1993 to the 15th conference in 2007. It lists alphabetically the 1037 speakers who presented at all 15 conferences and the titles of their papers.
Derivatives pricing in energy markets: an infinite dimensional approach
Based on forward curves modelled as Hilbert-space valued processes, we
analyse the pricing of various options relevant in energy markets. In
particular, we connect empirical evidence about energy forward prices known
from the literature to propose stochastic models. Forward prices can be
represented as linear functions on a Hilbert space, and options can thus be
viewed as derivatives on the whole curve. The value of these options are
computed under various specifications, in addition to their deltas. In a second
part, cross-commodity models are investigated, leading to a study of square
integrable random variables with values in a "two-dimensional" Hilbert space.
We analyse the covariance operator and representations of such variables, as
well as presenting applications to pricing of spread and energy quanto options
The valuation of clean spread options: linking electricity, emissions and fuels
The purpose of the paper is to present a new pricing method for clean spread options, and to illustrate its main features on a set of numerical examples produced by a dedicated computer code. The novelty of the approach is embedded in the use of a structural model as opposed to reduced-form models which fail to capture properly the fundamental dependencies between the economic factors entering the production process
- ā¦