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Valuation of electricity swing options by multistage stochastic programming

abstract Electricity swing options are Bermudan-style path-dependent derivatives on electrical energy. We consider an electricity market driven by several exogenous risk factors and formulate the pricing problem for a class of swing option contracts with energy and power limits as well as ramping constraints. Efficient numerical solution of the arising multistage stochastic program requires aggregation of decision stages, discretization of the probability space, and reparameterization of the decision space. We report on numerical results and discuss analytically tractable limiting cases.
   
type journal paper
   
keywords Stochastic programming; Model approximation; Discretization; Energy; Finance; Swing option
   
language English
kind of paper journal article
date of appearance 1-4-2009
journal Automatica
publisher Elsevier
ISSN 0005-1098
number of issue 45 (4)
page(s) 889-899
review double-blind review
   
citation Kuhn, D., & Haarbrücker, G. (2009). Valuation of electricity swing options by multistage stochastic programming. Automatica(45 (4)), 889-899.