Details
| Original language | English |
|---|---|
| Pages (from-to) | 34-57 |
| Number of pages | 24 |
| Journal | Journal of Economic Dynamics and Control |
| Volume | 58 |
| Publication status | Published - 1 Sept 2015 |
Abstract
In order to increase overall transparency on key operational information, power transmission system operators publish an increasing amount of fundamental data, including forecasts of electricity demand and available capacity. We employ a fundamental model for electricity prices which lends itself well to integrating such forecasts, while retaining ease of implementation and tractability to allow for analytic derivatives pricing formulae. In an extensive futures pricing study, the pricing performance of our model is shown to further improve based on the inclusion of electricity demand and capacity forecasts, thus confirming the general importance of forward-looking information for electricity derivatives pricing. However, we also find that the usefulness of integrating forecast data into the pricing approach is primarily limited to those periods during which electricity prices are highly sensitive to demand or available capacity, whereas the impact is less visible when fuel prices are the primary underlying driver to prices instead.
Keywords
- Derivatives pricing, Electricity futures, Enlargement of filtrations, Forward-looking information, Fundamental model
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- Economics and Econometrics
- Mathematics(all)
- Control and Optimization
- Mathematics(all)
- Applied Mathematics
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In: Journal of Economic Dynamics and Control, Vol. 58, 01.09.2015, p. 34-57.
Research output: Contribution to journal › Article › Research › peer review
}
TY - JOUR
T1 - Electricity derivatives pricing with forward-looking information
AU - Füss, Roland
AU - Mahringer, Steffen
AU - Prokopczuk, Marcel
PY - 2015/9/1
Y1 - 2015/9/1
N2 - In order to increase overall transparency on key operational information, power transmission system operators publish an increasing amount of fundamental data, including forecasts of electricity demand and available capacity. We employ a fundamental model for electricity prices which lends itself well to integrating such forecasts, while retaining ease of implementation and tractability to allow for analytic derivatives pricing formulae. In an extensive futures pricing study, the pricing performance of our model is shown to further improve based on the inclusion of electricity demand and capacity forecasts, thus confirming the general importance of forward-looking information for electricity derivatives pricing. However, we also find that the usefulness of integrating forecast data into the pricing approach is primarily limited to those periods during which electricity prices are highly sensitive to demand or available capacity, whereas the impact is less visible when fuel prices are the primary underlying driver to prices instead.
AB - In order to increase overall transparency on key operational information, power transmission system operators publish an increasing amount of fundamental data, including forecasts of electricity demand and available capacity. We employ a fundamental model for electricity prices which lends itself well to integrating such forecasts, while retaining ease of implementation and tractability to allow for analytic derivatives pricing formulae. In an extensive futures pricing study, the pricing performance of our model is shown to further improve based on the inclusion of electricity demand and capacity forecasts, thus confirming the general importance of forward-looking information for electricity derivatives pricing. However, we also find that the usefulness of integrating forecast data into the pricing approach is primarily limited to those periods during which electricity prices are highly sensitive to demand or available capacity, whereas the impact is less visible when fuel prices are the primary underlying driver to prices instead.
KW - Derivatives pricing
KW - Electricity futures
KW - Enlargement of filtrations
KW - Forward-looking information
KW - Fundamental model
UR - http://www.scopus.com/inward/record.url?scp=84939457169&partnerID=8YFLogxK
U2 - 10.1016/j.jedc.2015.05.016
DO - 10.1016/j.jedc.2015.05.016
M3 - Article
AN - SCOPUS:84939457169
VL - 58
SP - 34
EP - 57
JO - Journal of Economic Dynamics and Control
JF - Journal of Economic Dynamics and Control
SN - 0165-1889
ER -