A Space-Time Random Field Model for Electricity Forward Prices

Benth, Fred Espen; Paraschiv, Florentina

doi:10.2139/ssrn.2783296

Cited by 5 publications

(3 citation statements)

References 37 publications

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“…An additional property of electricity and commodity markets is the Samuelson effect (see Samuelson (1965)): The closer we reach the end of the maturity, the more effect the volatility has. Benth and Paraschiv (2016) and Jaeck and Lautier (2016) provide empirical evidence for the Samuelson effect in the volatility term-structure of electricity swaps. It can also be observed in the implied volatilities of electricity options, especially far out and in the money (see Kiesel et al (2009)).…”

Section: Geometric Price Dynamicsmentioning

confidence: 99%

The market price of risk for delivery periods: Pricing swaps and options in electricity markets

Annika¹,

Schmeck²,

Balci³

2022

Energy Economics

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Section: Geometric Price Dynamicsmentioning

confidence: 99%

The market price of risk for delivery periods: Pricing swaps and options in electricity markets

Annika¹,

Schmeck²,

Balci³

2022

Energy Economics

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“…For FTRs whose payoffs are linear in the nodal prices, the value of the FTR from i to j can also be derived from forward electricity price curves relative to nodes i and j. The construction of forward electricity curves is considered in Fleten and Lemming (2003), Benth et al (2007), Caldana et al (2015 and Benth and Paraschiv (2018). These methods generally estimate a seasonality component from electricity market data.…”

Section: Related Literaturementioning

confidence: 99%

Implied Markov transition matrices under structural price models

Defourny

Moazeni

2021

Quantitative Finance

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This paper proposes an approach to compute the implied transition matrices from observations of market data on financial derivatives, when the price of the underlying originates from a structural model and the payoffs are received over a period of time. The structural price model involves a price formation mechanism which computes the price based on a set of Markovian inputs and constrained optimization processes. The developed inference method relies on a linear description of the derivative values in terms of occupation measures of the payoff duration. We establish closed-form expressions between occupation measures and state transitions, which then enable us to characterize implied state transition probabilities consistent with the market data on the derivative values. We develop methods to solve the optimization problem with the resulting nonlinear occupation measure equation. Numerical illustrations of the approach are presented for financial derivatives on network capacities. By applying the method to an electric network, we investigate the relation between financial transmission correct contract values and a range of implied probabilities of congestion in the network.

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“…While the forward modeling directly characterize curve dynamics, the spot modeling approach specify a process for spot prices and then, under simplifying assumptions, derive forward and future price dynamics based on no-arbitrage principles. These two are the main approaches when dealing with derivatives pricing, in particular of electricity markets [14].…”

Section: Objective and Contributionsmentioning

confidence: 99%

A Novel Semiparametric Structural Model for Electricity Forward Curves

MONTEIRO¹

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A Space-Time Random Field Model for Electricity Forward Prices

Cited by 5 publications

References 37 publications

The market price of risk for delivery periods: Pricing swaps and options in electricity markets

The market price of risk for delivery periods: Pricing swaps and options in electricity markets

Implied Markov transition matrices under structural price models

A Novel Semiparametric Structural Model for Electricity Forward Curves

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