The main objective of this work is to construct optimal temperature futures from available market-traded contracts to hedge spatial risk. Temperature dynamics are modelled by a stochastic differential equation with spatial dependence. Optimal positions in market-traded futures minimizing the...

Daily average temperature variations are modelled with a mean-reverting Ornstein-Uhlenbeck process driven by a generalized hyperbolic Levy process and having seasonal mean and volatility. It is empirically demonstrated that the proposed dynamics fits Norwegian temperature data quite...

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...

Following the increasing awareness of the risk from volatility fluctuations, the market for hedging contracts written on realized volatility has surged. Companies looking for means to secure against unexpected accumulation of market activity can find over-the-counter products written on...

A mean-reverting model is proposed for the spot price dynamics of electricity which includes seasonality of the prices and spikes. The dynamics is a sum of non-Gaussian Ornstein-Uhlenbeck processes with jump processes giving the normal variations and spike behaviour of the prices. The amplitude...

We derive an arbitrage-free pricing dynamics for claims on temperature, where the temperature follows a fractional Ornstein-Uhlenbeck process. Using a fractional white noise calculus, one can express the dynamics as a special type of conditional expectation not coinciding with the classical one....