A structural risk-neutral model of electricity prices

International Journal of Theoretical and Applied Finance

Volumn 12, Issue 7, 2009, Pages 925-947

  Aïd, René ^a   Campi, Luciano ^b,c   Huu, Adrien Nguyen ^b   Touzi, Nizar ^d  

^a EDF R AND D   (France)

^b UNIVERSITÉ PARIS DAUPHINE   (France)

^c EDF R D))   (Mexico)

^d CENTRE DE MATHÉMATIQUES APPLIQUÉES   (France)

Author keywords

Electricity prices; Energy markets; Forward contract; Fuel prices; No arbitrage pricing; Risk neutral probability

Indexed keywords

EID: 71249136444     PISSN: 02190249     EISSN: None     Source Type: Journal    
DOI: 10.1142/S021902490900552X     Document Type: Article

References (24)

1. Y. Ait-Sahalia, Maximum likelihood estimation of discretely sampled diffusions: A closed-form approximation approach, Econometrica 70(1) (2002) 223-262.
2. M. T. Barlow, A diffusion model for electricity prices, Mathematical Finance 12(4) (2002) 287-298.
3. J. Batut and A. Renaud, Daily generation scheduling with transmission constraints: A new class of algorithms, IEEE Transactions on Power Systems 7 (1992) 982-989.
4. F. E. Benth, J. S. Benth and S. Koekebakker, Stochastic Modeling of Electricity and Related Markets (World Scientific Publishing Company, 2008).
5. F. E. Benth, L. Ekeland, R. Hauge and B. F. Nielsen, A note on arbitrage-free pricing of forward contracts in energy markets, Applied Mathematical Finance 10(4) (2003) 325-336.
6. F. E. Benth and S. Koekebakker, Stochastic modeling of financial electricity contracts, Journal of Energy Economics 30 (2007) 1116-1157.
7. F. E. Benth, S. Koekebakker and F. Ollmar, Extracting and applying smooth forward curves from average-based commodity contracts with seasonal variation, Journal of Derivatives 15(1) (2007) 52-66.
8. T. Bj̈ork, Arbitrage Theory in Continuous Time (Oxford University Press, 2004).
9. M. Burger, B. Graeber and G. Schindlmayr, Managing Energy Risk: An Integrated View on Power and Other Energy Markets (Wiley, 2008).
10. M. Burger, B. Klar, A. Mller and G. Schlindmayr, A spot market model for pricing derivatives in electricity markets, Quantitative Finance 4 (2004) 109-122.
11. A. Cartea and M. G. Figueroa, Pricing in electricity markets: A mean reverting jump diffusion model with seasonality, Applied Mathematical Finance 12(4) 313-335.
12. L. Clewlow and C. Strickland, Energy Derivatives (Lacima Group, 2000).
13. F. Delbaen and W. Schachermayer, A general version of the fundamental theorem of asset pricing, Mathematische Annalen 312 (1994) 215-250.
14. D. Dentcheva, R. Gollmer, A. M̈oller, W. Römisch and R. Schuttz, Solving the unit commitment problem in power generation with primal and dual methods, in Progress in Industrial Mathematics, Teubner, Stuttgart, M. Brøns, M. P. Bendsøe and M. P. Sørensen, eds. (ECMI 96, 1997), pp. 332-339.
15. A. Eydeland and K. Wolyniec, Energy and Power Risk Management: New Developments in Modeling, Pricing and Hedging (Wiley, 2002).
16. S.-E. Fleten and J. Lemming, Constructing forward price curves in electricity markets, Energy Economics 25 (2003) 409-424.
17. H. Geman, Commodities and Commodity Derivatives: Modelling and Pricing for Agriculturals, Metals and Energy (Wiley, 2007).
18. H. Geman and A. Roncoroni, Understanding the fine structure of electricity prices, Journal of Business 79(3) (2002) 1225-1262.
19. H. Föllmer and M. Schweizer, Hedging of Contingent Claims Under Incomplete Information, Applied Stochastic Analysis (London, 1989), Stochastics Monograph 5 (Gordon and Breach, New York, 1991), pp. 389-414.
20. I. Karatzas, Lectures on the Mathematics of Finance, CRM Monograph Series, 8 (American Mathematical Society, Providence, RI, 1997).
21. I. Karatzas and S. E. Shreve, Brownian Motion and Stochastic Calculus (Springer-Verlag, 1991).
22. B. R. Routledge, D. J. Seppi and C. S. Spatt, Equilibrium forward curves for commodities, The Journal of Finance 55(3) (2000) 1297-1338.
23. E. Schwartz, The stochastic behavior of commodity prices: Implications for valuation and hedging, The Journal of Finance 52(3) (1997) 923-973. (Pubitemid 127344954)
24. M. Schweizer, A guided tour through quadratic hedging approaches, Option pricing, interest rates and risk management, in Handb. Math. Finance (Cambridge University Press, Cambridge, 2001), pp. 538-574.