Energy Derivatives with Volume Controls

Fred Espen Benth () and Marcus Eriksson ()
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Fred Espen Benth: University of Oslo
Marcus Eriksson: University of Oslo

Chapter Chapter 16 in Handbook of Risk Management in Energy Production and Trading, 2013, pp 413-432 from Springer

Abstract: Abstract We analyse two classes of power derivatives with volume control, tolling agreements and flexible load contracts. Under certain assumptions, we can price a tolling agreement by resorting to theory of flexible load contracts, when using the fuel cost as numeraire in the power price. Tolling agreements can be priced as a strip of spread options under simple set of controls. Finally, we prove a general theory based on dynamic programming for these two classes of derivatives. We base our theory on price dynamics driven by Brownian motion.

Keywords: Option Price; Admissible Control; Fuel Price; Volume Constraint; Spot Price (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1007/978-1-4614-9035-7_16

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