Market price of risk implied by Asian-style electricity options

Rafał Weron ()

Econometrics from EconWPA

Abstract: In this paper we propose a jump diffusion type model which recovers the main characteristics of electricity spot price dynamics, including seasonality, mean reversion, and spiky behavior. Calibration of the market price of risk allows for pricing of Asian-type options written on the spot electricity price traded at Nord Pool. The usefulness of the approach is confirmed by out-of-sample tests.

Keywords: Power market; Electricity price modeling; Asian option; Market price of risk; Derivatives pricing (search for similar items in EconPapers)
JEL-codes: C51 G13 L94 Q40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-fin and nep-sea
Date: 2005-02-07
Note: Type of Document - pdf; pages: 19
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpem:0502003

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