A 'simple' hybrid model for power derivatives

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dc.contributor.authorLyle, M.
dc.contributor.authorElliott, R.
dc.date.issued2009
dc.descriptionCopyright © 2009 Elsevier B.V. All rights reserved.
dc.description.abstractThis paper presents a method for valuing power derivatives using a supply-demand approach. Our method extends work in the field by incorporating randomness into the base load portion of the supply stack function and equating it with a noisy demand process. We obtain closed form solutions for European option prices written on average spot prices considering two different supply models: a mean-reverting model and a Markov chain model. The results are extensions of the classic Black-Scholes equation. The model provides a relatively simple approach to describe the complicated price behaviour observed in electricity spot markets and also allows for computationally efficient derivatives pricing.
dc.description.statementofresponsibilityMatthew R. Lyle, Robert J. Elliott
dc.identifier.citationEnergy Economics, 2009; 31(5):757-767
dc.identifier.doi10.1016/j.eneco.2009.05.007
dc.identifier.issn0140-9883
dc.identifier.urihttp://hdl.handle.net/2440/57059
dc.language.isoen
dc.publisherElsevier Science BV
dc.rightsCopyright 2009 Elsevier B.V.
dc.source.urihttps://doi.org/10.1016/j.eneco.2009.05.007
dc.subjectElectricity pricing
dc.subjectPower derivatives
dc.subjectSeasonality
dc.titleA 'simple' hybrid model for power derivatives
dc.typeJournal article
pubs.publication-statusPublished

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