Spot power prices are volatile and since electricity cannot be economically stored, familiar arbitrage-based methods are not applicable for pricing power derivative contracts. This paper presents an equilibrium model implying that the forward power price is a downward biased predictor of the...

This article refocuses attention on the potential efficiency gains from competitive wholesale power trading, which allows the diversification of demand risk. The greatest efficiency gains obtain when power demand is least correlated across markets and when there is substantial cross-sectional...

Electricity cannot be economically stored, leading to volatile spot prices and implying that standard cost-of-carry relations are not useful for pricing electricity forward contracts. We model spot and forward power markets, evaluating the demand for risk reduction and assessing equilibrium spot...

While some financial markets increasingly rely on endogenous liquidity provision by ldquo;high frequencyrdquo; traders, others also contract with ldquo;designated market makersrdquo; who commit to provide more liquidity than they would otherwise choose. We identify two reasons that such...

We consider retail prices and efficiency gains from wholesale trading in both regulated and competitive power markets. Wholesale power trading facilitates risk sharing, so that the minimally-required retail price decreases for all producers. A portion of the efficiency gains can be captured by...