Pricing in Electricity Markets: a Mean Reverting Jump Diffusion Model with Seasonality

Abstract

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.Energy derivatives, mean reversion, jump diffusion, electricity spot and forward.