Electricity markets feature a non-storable underlying, which implies the break down of traditional cash-and-carry arguments as well as the well-known spot-forward relationship. We introduce the notion of information premium to describe the influence of future information - such as planned power...

We consider the model risk inherent in the valuation procedure of fossil power plants. To capture model risk we use risk-capturing functionals, a methodology recently established in a series of papers. As gas-fired power plants are seen as flexible and low-carbon sources of electricity which are...

This paper analyzes the valuation of day-ahead Physical Transmission Rights (PTRs) on the German-Dutch interconnector. From a financial perspective, PTRs are options written on the difference between the German and Dutch hourly electricity prices. We propose a model for the valuation of...

This paper analyzes the valuation of monthly Physical Transmission Rights (PTRs) on the German-Dutch interconnector. From a financial perspective, PTRs are exchange options written on the German and Dutch day-ahead electricity price. We extend the famous exchange option model by Margrabe (1978)...

We value two real options related to offshore petroleum production. We consider expansion of an offshore oil field by tying in a satellite field, and the option of early decommissioning. Even if the satellite field is not profitable to develop at current oil prices, the option to tie in such...

Aiming to study pricing of long-dated commodity derivatives, this paper presents a class of models within the Heath, Jarrow, and Morton (1992) framework for commodity futures prices that incorporates stochastic volatility and stochastic interest rate and allows a correlation structure between...

In this paper, we investigate the pricing of crack spread options. The special focus is laid on the question, of whether univariate modeling of the crack spread or explicit modeling of the two underlyings is preferable. Therefore, we contrast the bivariate GARCH volatility model for...

In this paper we develop a continuous time factor model of commodity prices that allows for higher order autoregression and moving average components. The need for these components is documented by analyzing the convenience yield's time series dynamics. Making use of the affine model structure,...

Does modelling stochastic interest rates, beyond stochastic volatility, improve pricing performanceon long-dated commodity derivatives? To answer this question, we consider futuresprice models for commodity derivatives that allow for stochastic volatility and stochastic interestrates and a...

Using proprietary energy futures position data, we provide evidence that mean hedger profits are negative while speculator (especially hedge fund) profits are positive; that speculators and hedgers who hold long (short) positions when likely hedgers in aggregate are net short (long) have higher...