GARCH-based put option valuation to maximize benefit of wind investors

Javier Contreras and Yeny E. Rodríguez

Applied Energy, 2014, vol. 136, issue C, 259-268

Abstract: A method based on Empirical Martingale Simulation (EMS) is presented to evaluate investments in wind energy. Risk-neutral prices are calculated, where electricity market prices are modeled using an ARIMA–GARCH method which shows conditional heteroskedasticity. The values of the put options are calculated a week ahead and it is observed that wind producers that invest in the options market can hedge against price risk and can also maximize their benefits. The use of Monte Carlo simulation with the EMS method in periods of high volatility is especially useful for investors facing price volatilities in order to improve their returns. The model is applied to the Colombian electricity market.

Keywords: Wind investments; Put options; ARIMA–GARCH; Conditional heteroskedasticity; Empirical Martingale Simulation (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0306261914008988
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:appene:v:136:y:2014:i:c:p:259-268

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/journaldescription.cws_home/405891/bibliographic
http://www.elsevier. ... 405891/bibliographic

DOI: 10.1016/j.apenergy.2014.08.085

Access Statistics for this article

Applied Energy is currently edited by J. Yan

More articles in Applied Energy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().