A new approach to wind power futures pricing

Markus Hess ()

Decisions in Economics and Finance, 2021, vol. 44, issue 2, No 32, 1235-1252

Abstract: Abstract We propose a new model for the pricing of wind power futures written on the wind power production index. Our approach is based on an arithmetic multi-factor pure-jump Ornstein–Uhlenbeck setup with time-dependent coefficients. We express the wind power production index and the corresponding futures price in terms of Fourier integrals and derive the related time dynamics. We conclude the paper by an investigation of the risk premium associated with our wind power model.

Keywords: Wind power futures; Wind power production index; Arithmetic multi-factor model; Pure-jump Ornstein–Uhlenbeck process; Lévy-type process; Fourier transform; Stochastic differential equation; Risk premium; 60H05; 60H10; 60G44; 60G57; 91B70 (search for similar items in EconPapers)
JEL-codes: C02 D52 G13 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s10203-021-00345-8

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