Modeling positive electricity prices with arithmetic jump-diffusions
We propose a mean-reverting electricity spot price model of arithmetic jump-diffusion type yielding positive prices. Based on this approach, we derive the corresponding forward and futures price representations. We further discuss different choices for the stochastic mean level process and investiga...
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| Veröffentlicht in: | Energy economics 2017-09, Vol.67, p.496-507 |
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| container_title | Energy economics |
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| creator | Hess, Markus |
| description | We propose a mean-reverting electricity spot price model of arithmetic jump-diffusion type yielding positive prices. Based on this approach, we derive the corresponding forward and futures price representations. We further discuss different choices for the stochastic mean level process and investigate the long-term behavior of the spot price. In the second part, we take future information available to the traders into account. The latter is modeled by initially enlarged filtrations with respect to (a) the mean level of the spot, (b) the driving diffusion component and (c) the jump term. We also derive forward and futures price representations under these enlarged filtrations. Finally, we consider the evaluation of options in the proposed models.
•Mean-reverting arithmetic jump-diffusion electricity price model•Stochastic mean-level process•Long-term behavior of electricity spot and forward prices•Future information modeled by initially enlarged filtrations•Forward prices and option pricing under enlarged filtrations |
| doi_str_mv | 10.1016/j.eneco.2017.08.016 |
| format | Article |
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Based on this approach, we derive the corresponding forward and futures price representations. We further discuss different choices for the stochastic mean level process and investigate the long-term behavior of the spot price. In the second part, we take future information available to the traders into account. The latter is modeled by initially enlarged filtrations with respect to (a) the mean level of the spot, (b) the driving diffusion component and (c) the jump term. We also derive forward and futures price representations under these enlarged filtrations. Finally, we consider the evaluation of options in the proposed models.
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| identifier | ISSN: 0140-9883 |
| ispartof | Energy economics, 2017-09, Vol.67, p.496-507 |
| issn | 0140-9883 1873-6181 |
| language | eng |
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| source | PAIS Index; Access via ScienceDirect (Elsevier) |
| subjects | Arithmetic Arithmetic jump-diffusion model Diffusion Electric rates Electricity Electricity pricing Electricity spot/forward/futures price Energy economics Enlargement of filtration Future information Insider trading Long-term behavior Mathematics Option pricing Ornstein-Uhlenbeck process Positivity of solution to stochastic differential equation Prices Representations Stochastic calculus Stochastic models Stochastic processes Stochasticity Studies |
| title | Modeling positive electricity prices with arithmetic jump-diffusions |
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