European Option Pricing of electricity under exponential functional of L\'evy processes with Price-Cap principle

Martin Kegnenlezom, Patrice Takam Soh, Antoine-Marie Bogso and Yves Emvudu Wono

Papers from arXiv.org

Abstract: We propose a new model for electricity pricing based on the price cap principle. The particularity of the model is that the asset price is an exponential functional of a jump L\'evy process. This model can capture both mean reversion and jumps which are observed in electricity market. It is shown that the value of an European option of this asset is the unique viscosity solution of a partial integro-differential equation (PIDE). A numerical approximation of this solution by the finite differences method is provided. The consistency, stability and convergence results of the scheme are given. Numerical simulations are performed under a smooth initial condition.

Date: 2019-06
New Economics Papers: this item is included in nep-ene and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/1906.10888 Latest version (application/pdf)

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:arx:papers:1906.10888

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().