This paper provides a novel approach for the pricing of electricity derivatives, in particular so-called ‘cap' contracts, where the payoff is determined by the sum of all half-hourly spot prices exceeding a specified strike level. Given the highly volatile nature of electricity prices, these...

In this paper we employ a fundamental principle of classical mechanics known as the Least Action Principle to model the complex relationship between expected load and expected price in electricity spot markets. We consider here markets that feature a centralised electricity dispatch system that...