A spot market model for pricing derivatives in electricity markets
- 1 February 2004
- journal article
- Published by Taylor & Francis in Quantitative Finance
- Vol. 4 (1), 109-122
- https://doi.org/10.1088/1469-7688/4/1/010
Abstract
In this paper, we analyse the evolution of prices in deregulated electricity markets. We present a general model that simultaneously takes into account the following features: seasonal patterns, price spikes, mean reversion, price dependent volatilities and long term non-stationarity. We estimate the parameters of the model using historical data from the European Energy Exchange. Finally, we demonstrate how it can be used for pricing derivatives via Monte Carlo simulation.Keywords
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