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Title: A ‘simple’ hybrid model for power derivatives
Authors: Elliott, Robert
Lyle, Matthew R.
Keywords: Electricity pricing;Power derivatives
Issue Date: 2009
Publisher: Elsevier
Citation: R.J. Elliott and M.R.Lyle, „A „Simple‟ Hybrid Model for Power Derivatives‟. Energy Economics 31 (2009) 757–767
Abstract: This paper presents a method for valuing power derivatives using a supply–demand approach. Our method extends work in the field by incorporating randomness into the base load portion of the supply stack function and equating it with a noisy demand process. We obtain closed form solutions for European option prices written on average spot prices considering two different supply models: a mean-reverting model and a Markov chain model. The results are extensions of the classic Black–Scholes equation. The model provides a relatively simple approach to describe the complicated price behaviour observed in electricity spot markets and also allows for computationally efficient derivatives pricing.
Description: Article deposited according to the policy found on the Elsevier website, ,, June 28, 2012.
ISSN: 0140-9883
Appears in Collections:Elliott, Robert

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