Electricity Spot and Derivatives Pricing under Market Coupling

Item Type Monograph (Working Paper)
Abstract

Increasing interconnectivity between electricity wholesale markets requires an efficient allocation scheme in order to provide access to scarce cross-border transmission capacities. The explicit schemes have primarily induced economically inefficient interconnector use given that flows have to be nominated prior to spot market clearing. By contrast, the market coupling mechanisms recently rolled out in parts of Europe avoid these inefficiencies by implicitly allocating cross-border transmission capacity upon spot market clearance. In this paper, we show that these institutional aspects of market design clearly manifest in the empirical dynamics of both electricity spot and derivatives prices, and hence, do have important implications for pricing and hedging in these markets. Since traditional reduced-form models fail to reproduce such effects of market microstructure, we employ a fundamental multi-market model for electricity pricing in order to analyze how the key stylized facts of electricity prices are impacted by the different allocation schemes.

Authors Füss, Roland; Mahringer, Steffen; Prokopczuk, Marcel & Paraschiv, Florentina
Language English
Keywords Derivatives Pricing, Electricity Pricing, Energy Market Coupling, Multi-Market Fundamental Model.
Subjects business studies
economics
finance
HSG Classification contribution to scientific community
HSG Profile Area None
Refereed No
Date 2013
Publisher SoF-HSG
Place of Publication St. Gallen
Series Name School of Finance Working Paper Series
Number 2013/23
Number of Pages 52
Contact Email Address roland.fuess@unisg.ch
Depositing User Prof. Dr. Roland Füss
Date Deposited 20 Jan 2014 11:16
Last Modified 04 Jul 2018 10:01
URI: https://www.alexandria.unisg.ch/publications/228685

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Citation

Füss, Roland; Mahringer, Steffen; Prokopczuk, Marcel & Paraschiv, Florentina: Electricity Spot and Derivatives Pricing under Market Coupling. School of Finance Working Paper Series, 2013, 2013/23.

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https://www.alexandria.unisg.ch/id/eprint/228685
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