 Optimal trading with regime switching: Numerical and analytic techniques applied to valuing storage in an electricity balancing marketPaul Johnson, Dávid Zoltán Szabó and Peter Duck European Journal of Operational Research, 2024, vol. 319, issue 2, 611-624 Abstract: Accurately valuing storage in the electricity market recognizes its role in enhancing grid flexibility, integrating renewable energy, managing peak loads, providing ancillary services and improving market efficiency. In this paper we outline an optimal trading problem for an Energy Storage Device trading on the electricity balancing (or regulating) market. To capture the features of the balancing (or regulating) market price we combine stochastic differential equations with Markov regime switching to create a novel model, and outline how this can be calibrated to real market data available from NordPool. By modelling a battery that can be filled or emptied instantaneously, this simplifying assumption allows us to generate numerical and quasi analytic solutions. Keywords: Perpetual options; Regime switching; Stochastic optimal control; Partial differential equations (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:319:y:2024:i:2:p:611-624 DOI: 10.1016/j.ejor.2024.06.026 Access Statistics for this article European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati More articles in European Journal of Operational Research from Elsevier |
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