The Market Price of Risk for Delivery Periods: Pricing Swaps and Options in Electricity Markets
Kemper A, Schmeck MD, Khripunova Balci A (2020) Center for Mathematical Economics Working Papers; 635.
Bielefeld: Center for Mathematical Economics.
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Abstract / Bemerkung
In electricity markets, futures contracts typically function as a swap since they deliver the
underlying over a period of time. In this paper, we introduce a market price for the delivery periods
of electricity swaps, thereby opening an arbitrage-free pricing framework for derivatives based on
these contracts. Furthermore, we use a weighted geometric averaging of an artificial geometric futures
price over the corresponding delivery period. Without any need for approximations, this averaging
results in geometric swap price dynamics. Our framework allows for including typical features as
the Samuelson effect, seasonalities, and stochastic volatility. In particular, we investigate the pricing
procedures for electricity swaps and options in line with Arismendi et al. (2016), Schneider and Tavin
(2018), and Fanelli and Schmeck (2019). A numerical study highlights the differences between these
models depending on the delivery period.
JEL CLASSIFICATION: G130 ; Q400
JEL CLASSIFICATION: G130 ; Q400
Stichworte
Electricity Swaps;
Delivery Period;
Market Price of Delivery Risk;
Seasonality;
Samuelson Effect;
Stochastic Volatility;
Option Pricing;
Heston Model
Erscheinungsjahr
2020
Serientitel
Center for Mathematical Economics Working Papers
Band
635
ISSN
0931-6558
Page URI
https://pub.uni-bielefeld.de/record/2943342
Zitieren
Kemper A, Schmeck MD, Khripunova Balci A. The Market Price of Risk for Delivery Periods: Pricing Swaps and Options in Electricity Markets. Center for Mathematical Economics Working Papers. Vol 635. Bielefeld: Center for Mathematical Economics; 2020.
Kemper, A., Schmeck, M. D., & Khripunova Balci, A. (2020). The Market Price of Risk for Delivery Periods: Pricing Swaps and Options in Electricity Markets (Center for Mathematical Economics Working Papers, 635). Bielefeld: Center for Mathematical Economics.
Kemper, Annika, Schmeck, Maren Diane, and Khripunova Balci, Anna. 2020. The Market Price of Risk for Delivery Periods: Pricing Swaps and Options in Electricity Markets. Vol. 635. Center for Mathematical Economics Working Papers. Bielefeld: Center for Mathematical Economics.
Kemper, A., Schmeck, M. D., and Khripunova Balci, A. (2020). The Market Price of Risk for Delivery Periods: Pricing Swaps and Options in Electricity Markets. Center for Mathematical Economics Working Papers, 635, Bielefeld: Center for Mathematical Economics.
Kemper, A., Schmeck, M.D., & Khripunova Balci, A., 2020. The Market Price of Risk for Delivery Periods: Pricing Swaps and Options in Electricity Markets, Center for Mathematical Economics Working Papers, no.635, Bielefeld: Center for Mathematical Economics.
A. Kemper, M.D. Schmeck, and A. Khripunova Balci, The Market Price of Risk for Delivery Periods: Pricing Swaps and Options in Electricity Markets, Center for Mathematical Economics Working Papers, vol. 635, Bielefeld: Center for Mathematical Economics, 2020.
Kemper, A., Schmeck, M.D., Khripunova Balci, A.: The Market Price of Risk for Delivery Periods: Pricing Swaps and Options in Electricity Markets. Center for Mathematical Economics Working Papers, 635. Center for Mathematical Economics, Bielefeld (2020).
Kemper, Annika, Schmeck, Maren Diane, and Khripunova Balci, Anna. The Market Price of Risk for Delivery Periods: Pricing Swaps and Options in Electricity Markets. Bielefeld: Center for Mathematical Economics, 2020. Center for Mathematical Economics Working Papers. 635.
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