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Electricity Derivatives Pricing with Forward-Looking Information

Journal
Journal of Economic Dynamics and Control
ISSN
0165-1889
ISSN-Digital
1879-1743
Type
journal article
Date Issued
2015-09-01
Author(s)
Füss, Roland  
;
Mahringer, Steffen
;
Prokopczuk, Marcel
DOI
10.1016/j.jedc.2015.05.016
Abstract
In order to increase overall transparency on key operational information, power transmission system operators publish an increasing amount of fundamental data, including forecasts of electricity demand and available capacity. We employ a fundamental model for electricity prices which lends itself well to integrating such forecasts, while retaining ease of implementation and tractability to allow for analytic derivatives pricing formulae. In an extensive futures pricing study, the pricing performance of our model is shown to further improve based on the inclusion of electricity demand and capacity forecasts, thus confirming the general importance of forward-looking information for electricity derivatives pricing. However, we also find that the usefulness of integrating forecast data into the pricing approach is primarily limited to those periods during which electricity prices are highly sensitive to demand or available capacity, whereas the impact is less visible when fuel prices are the primary underlying driver to prices instead.
Language
English
Keywords
Electricity Futures
Fundamental Model
Derivatives Pricing
Forward-looking Information
Enlargement of Filtrations
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Elsevier
Publisher place
Amsterdam
Volume
58
Number
September
Start page
34
End page
57
Pages
24
URL
https://www.alexandria.unisg.ch/handle/20.500.14171/105982
Subject(s)

business studies

Division(s)

SBF - Swiss Institute...

SEW - Swiss Institute...

Eprints ID
225969
File(s)
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