Increasing interconnectivity between electricity wholesale markets requires an efficient allocation scheme in order to provide access to scarce cross-border transmission capacities. The explicit schemes have primarily induced economically inefficient interconnector use given that flows have to...

In order to increase overall transparency on key operational information, power transmission system operators publish an increasing amount of fundamental data, including forecasts of electricity demand and available capacity. We develop a fundamental model for electricity prices which lends...

It is crucial to model, quantify and understand the variables and dynamics that underlie the well-known extreme behaviour of spot electricity prices in wholesale markets. We explicitly model the conditional volatility and skewness of electricity prices. A GARCH-type model allowing for...

CAT bonds are of significant importance in the field of alternative risk transfer. Since themarket of CAT bonds is not complete, the application of an appropriate pricing model is of high relevance.We apply different premium calculation models in order to compare them with regard to...

This paper analyzes and quantifies the idea of model risk in the environment of internal modelbuilding. We define various types of model risk including estimation risk, model risk in distributionand model risk in functional form. By the quantification of these concepts we analyzethe impact of...

The market model of interest rates specifies simple forward or Libor rates as lognormaly distributed, their stochastic dynamics has a linear volatility function. This model is extended to quadratic volatility which is the product of a quadratic polynomial and a level-independent covariance...

It is well-known that Gaussian hedging strategies are robust in the sense that they always lead to a cost process of bounded variation and that a superhedge is possible if upper bounds on the volatility of the relevant processes are available, cf. El Karoui, Jeanblanc-Picque and Shreve (1998)...

The liberalisation of energy markets entails the appearance of market risks which must be borne by market participants: producers, retailers, and final consumers. Some of these risks can be managed by participating in the forward markets and transferring it to other agents who are willing to...