2020/02/18 by Annika Kemper, Kemper, Annika, Maren Diane Schmeck +3
Economics, Econometrics and Finance · Engineering · #91G20 #91G80 #Electric Power System Optimization #Energy Load and Power Forecasting #FOS: Economics and business #Mathematical Finance (q-fin.MF) #Pricing of Securities (q-fin.PR) #Stochastic processes and financial applications
paper · pdf · doi:10.48550/arxiv.2002.07561
openalex publication_date 2020/02/18 · openalex created_date 2022/07/26 · openalex updated_date 2026/07/28
In electricity markets, futures contracts typically function as a swap since\nthey deliver the underlying over a period of time. In this paper, we introduce\na market price for the delivery periods of electricity swaps, thereby opening\nan arbitrage-free pricing framework for derivatives based on these contracts.\nFurthermore, we use a weighted geometric averaging of an artificial geometric\nfutures price over the corresponding delivery period. Without any need for\napproximations, this averaging results in geometric swap price dynamics. Our\nframework allows for including typical features as the Samuelson effect,\nseasonalities, and stochastic volatility. In particular, we investigate the\npricing procedures for electricity swaps and options in line with Arismendi et\nal. (2016), Schneider and Tavin (2018), and Fanelli and Schmeck (2019). A\nnumerical study highlights the differences between these models depending on\nthe delivery period.\n