Market price of risk implied by Asian-style electricity options

In this paper we propose a jump diffusion type model which recovers the main characteristics of electricity spot price dynamics, including seasonality, mean reversion, and spiky behavior. Calibration of the market price of risk allows for pricing of Asian-type options written on the spot electricity price traded at Nord Pool. The usefulness of the approach is confirmed by out-of-sample tests.

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Year of publication:	2005-02-07
Authors:	Weron, Rafal
Institutions:	EconWPA
Subject:	Power market \| Electricity price modeling \| Asian option \| Market price of risk \| Derivatives pricing

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Extent:	application/pdf
Series:	Econometrics.
Type of publication:	Book / Working Paper
Notes:	Type of Document - pdf; pages: 19 19 pages
Classification:	C51 - Model Construction and Estimation ; G13 - Contingent Pricing; Futures Pricing ; L94 - Electric Utilities ; Q40 - Energy. General
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005119166