On the seasonality in the implied volatility of electricity options

Fanelli V, Schmeck MD (2019)
Quantitative Finance 19(8): 1321-1337.

Zeitschriftenaufsatz | E-Veröff. vor dem Druck | Englisch
 
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Autor*in
Fanelli, Viviana; Schmeck, Maren DianeUniBi
Abstract / Bemerkung
Seasonality is an important topic in electricity markets, as both supply and demand are dependent on the time of the year. Clearly, the level of prices shows a seasonal behaviour, but not only this. Also, the price fluctuations are typically seasonal. In this paper, we study empirically the implied volatility of options on electricity futures, investigate whether seasonality is present and we aim at quantifying its structure. Although typically futures prices can be well described through multi-factor models including exponentially decreasing components, we do not find evidence of exponential behaviour in our data set. Generally, a simple linear shape reflects the squared volatilities very well as a curve depending on the time to maturity. Moreover, we find that the level of volatility exhibits clear seasonal patterns that depend on the delivery month of the futures. Furthermore, in an out-of-sample analysis we compare the performance of several implementations of seasonality in the one-factor framework.
Stichworte
Implied volatility; Electricity options; Seasonality; Factor models; Settlement prices; Season cycle
Erscheinungsjahr
2019
Zeitschriftentitel
Quantitative Finance
Band
19
Ausgabe
8
Seite(n)
1321-1337
ISSN
1469-7688
eISSN
1469-7696
Page URI
https://pub.uni-bielefeld.de/record/2935585

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Fanelli V, Schmeck MD. On the seasonality in the implied volatility of electricity options. Quantitative Finance . 2019;19(8):1321-1337.
Fanelli, V., & Schmeck, M. D. (2019). On the seasonality in the implied volatility of electricity options. Quantitative Finance , 19(8), 1321-1337. doi:10.1080/14697688.2019.1582792
Fanelli, V., and Schmeck, M. D. (2019). On the seasonality in the implied volatility of electricity options. Quantitative Finance 19, 1321-1337.
Fanelli, V., & Schmeck, M.D., 2019. On the seasonality in the implied volatility of electricity options. Quantitative Finance , 19(8), p 1321-1337.
V. Fanelli and M.D. Schmeck, “On the seasonality in the implied volatility of electricity options”, Quantitative Finance , vol. 19, 2019, pp. 1321-1337.
Fanelli, V., Schmeck, M.D.: On the seasonality in the implied volatility of electricity options. Quantitative Finance . 19, 1321-1337 (2019).
Fanelli, Viviana, and Schmeck, Maren Diane. “On the seasonality in the implied volatility of electricity options”. Quantitative Finance 19.8 (2019): 1321-1337.