Pricing electricity forwards under future information on the stochastic mean-reversion level

Markus Hess ()

Decisions in Economics and Finance, 2020, vol. 43, issue 2, No 18, 767 pages

Abstract: Abstract We extend the arithmetic multi-factor electricity spot price model proposed by Benth et al. (Appl Math Finance 14(2):153–169, 2007) by adding stochastic mean-level processes to their model and by taking additional information on the future behavior of these mean-level processes into account. The available anticipative information is modeled by an initially enlarged filtration in our paper. We further derive pricing formulas for electricity forwards under future information and investigate the associated information premium.

Keywords: Electricity spot/forward/futures price; Arithmetic multi-factor model; Pure-jump Ornstein–Uhlenbeck process; Lévy-type process; Poisson random measure; Stochastic differential equation; Initially enlarged filtration; Information premium; 60G44; 60G51; 60G57; 60H10; 91B44; 91B70; 91G20 (search for similar items in EconPapers)
JEL-codes: C02 D43 D52 D82 G13 G14 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10203-020-00307-6

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