Empirical Evidence of the Market Price of Risk for Delivery Periods

Annika Kemper () and Maren Diane Schmeck ()
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Annika Kemper: Center for Mathematical Economics (IMW), Bielefeld University, 33615 Bielefeld, Germany
Maren Diane Schmeck: Center for Mathematical Economics (IMW), Bielefeld University, 33615 Bielefeld, Germany

Risks, 2025, vol. 13, issue 1, 1-20

Abstract: In this paper, we provide empirical evidence of the market price of risk for delivery periods (MPDP) of electricity swap contracts. The MPDP enables an accurate pricing of such contracts in the presence of the delivery period such that the typical approximations can be avoided. In our empirical study, we focus on term-structure effects and identify the resulting MPDP. In presence of the Samuelson effect, we find the most pronounced MPDP close to maturity, while the MPDP disappears proportional to the Samuelson effect far away from maturity. Thus, our theory improves the pricing accuracy close to maturity.

Keywords: electricity swaps; delivery period; MPDP for diffusion risk; mean reversion; Samuelson effect (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:13:y:2025:i:1:p:7-:d:1559951

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