A note on arbitrage-free pricing of forward contracts in energy markets

Arbitrage theory is used to price forward (futures) contracts in energy markets, where the underlying assets are non-tradeable. The method is based on the so-called 'fitting of the yield curve' technique from interest rate theory. The spot price dynamics of Schwartz is generalized to multidimensional correlated stochastic processes with Wiener and Levy noise. Findings are illustrated with examples from oil and electricity markets.

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Year of publication:	2003
Authors:	Benth, Fred Espen ; Ekeland, Lars ; Hauge, Ragnar ; Nielsen, BjøRn Fredrik
Published in:	Applied Mathematical Finance. - Taylor & Francis Journals, ISSN 1350-486X. - Vol. 10.2003, 4, p. 325-336
Publisher:	Taylor & Francis Journals
Subject:	incomplete markets \| forward pricing \| energy markets \| no-arbitrage pricing \| Levy processes

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Type of publication:	Article
Source:	RePEc - Research Papers in Economics

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