Joint econometric modeling of spot electricity prices, forwards and options

Alain Monfort and Olivier Féron ()

Review of Derivatives Research, 2012, vol. 15, issue 3, 217-256

Abstract: We propose a joint modeling of spot electricity prices, forwards prices and other derivative prices, using recent developments in discrete time asset pricing methods based on the notions of stochastic discount factor and of Compound Autoregressive (or affine) stochastic processes. We show that this approach provides quasi explicit formulae for forward and option prices, while allowing for a large flexibility in the modeling of dynamics, spikes and seasonality, both in the historical and the risk neutral worlds. We also propose a variety of inference techniques involving inversion methods, the Kalman filter and the Kitagawa–Hamilton filter. Finally, an application based on French spot prices and forward products is proposed. Copyright Springer Science+Business Media, LLC 2012

Keywords: Electricity derivative pricing; Spikes; Car processes; Stochastic discount factor; Kitagawa–Hamilton filter; C10; C51; C58; G12 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (4)

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Working Paper: Joint Econometric Modeling of Spot Electricity Prices, Forwards and Options (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:kap:revdev:v:15:y:2012:i:3:p:217-256

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DOI: 10.1007/s11147-012-9075-z

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