485
Views
12
CrossRef citations to date
0
Altmetric
Research Papers

Modelling electricity prices: a time change approach

, , &
Pages 1089-1109 | Received 22 Jan 2015, Accepted 19 Nov 2015, Published online: 02 Feb 2016

References

  • Abate, J. and Whitt, W., The Fourier-series method for inverting transforms of probability distributions. Queueing Syst., 1992, 10(1–2), 5–87.
  • Albanese, C., Lo, H. and Tompaidis, S., A numerical method for pricing electricity derivatives based on continuous time lattices. Eur. J. Oper. Res., 2012, 222, 361–368.
  • Barndorff-Nielsen, O.E., Processes of normal inverse Gaussian type. Finance and Stoch., 1998, 2, 41–68.
  • Barndorff-Nielsen, O.E. and Levendorski{\u{i}}, S., Feller processes of normal inverse Guassian type. Quant. Finance, 2001, 1, 318–331.
  • Benth, F.E., Kallsen, J. and Meyer-Brandis, T., A Non-Gaussian Ornstein-Uhlenbeck process for electricity spot price modeling and derivatives pricing. Appl. Math. Finance, 2007, 14(2), 153–169.
  • Benth, F.E., Kiesel, R. and Nazarova, A., A critical empirical study of three electricity spot price models. Energy Econ., 2012, 34, 1589–1616.
  • Benth, F.E., \v{S}altyt\.{e} Benth, J. and Koekebakker, S., Stochastic Modelling of Electricity and Related Markets, 2008 (World Scientific: Singapore).
  • Billingsley, P., Statistical Inferences for Markov Processes, 1961 (The University of Chicago Press: Chicago, IL).
  • Birge, J., Cai, N. and Kou, S., A two-factor model for electricity spot and futures prices. Working Paper, 2010.
  • Boyarchenko, S.I. and Levendorski{\u{i}}, S., Non-Gaussian Merton–Black--Scholes Theory. Vol. 9, 2002 (World Scientific: Singapore).
  • Boyarchenko, N. and Levendorski\u{\.{i}}, S.Z., The eigenfunction expansion method in multifactor quadratic term structure models. Math. Finance, 2007, 17(4), 503–539.
  • Burger, M., Klar, B., Müller, A. and Schindlmayr, G., A spot market model for pricing derivatives in electricity markets. Quant. Finance, 2004, 4(1), 109–122.
  • Carr, P., Geman, H., Madan, D.B. and Yor, M., The fine structure of asset returns: An empirical investigation. J. Bus., 2002, 75(2), 305–332.
  • Cartea, A. and Figueroa, M.G., Pricing in electricity markets: A mean reverting jump diffusion model with seasonality. Appl. Math. Finance, 2005, 12(4), 313–335.
  • Cartea, A. and Villaplana, P., Spot price modeling and the valuation of electricity forward contracts: The role of demand and capacity. J. Bank. Finance, 2008, 32(12), 2502–2519.
  • Cheridito, P., Filipović, D. and Yor, M., Equivalent and absolutely continuous measure change for jump-diffusion processes. Ann. Appl. Probab., 2005, 15(3), 1713–1732.
  • Cont, R. and Tankov, P., Financial Modeling with Jump Processes, 2004 (Chapman & Hall: Cambridge).
  • Deng, S.J., Stochastic models of energy commodity prices and their applications: Mean reversion with jumps and spikes. Technical report, POWER, 1999.
  • Diebold, F.X. and Mariano, R.S., Comparing predictive accuracy. J. Bus. Econ. Stat., 1995, 16(4), 134–144.
  • Duffie, D., Filipović, D. and Schachermayer, W., Affine processes and application in finance. Ann. Appl. Probab., 2003, 13(3), 984–1053.
  • Duffie, D. and Gârleanu, N., Risk and valuation of collaterized debt obligations. Financ. Anal. J., 2001, 57(1), 41–59.
  • Escribano, A., Pe\~{n}a, J.I. and Villaplana, P., Modelling electricity prices: International evidence. Oxford Bull. Econ. Stat., 2011, 73(5), 622–650.
  • Ethier, S.N. and Kurtz, T.G., Markov Processes: Characterization and Convergence, 1986 (John Wiley & Sons: Hoboken, NJ).
  • Eydeland, A. and Wolyniec, K., Energy and Power Risk Management, 2003 (John Wiley & Sons: Hoboken, NJ).
  • Fang, F. and Oosterlee, C.W., Pricing early-exercise and discrete barrier options by Fourier-cosine series expansions. Numer. Math., 2009, 114(1), 27–62.
  • Geman, H., Commodities and Commodity Derivatives: Modeling and Pricing for Agriculturals, Metals and Energy, 2005 (John Wiley & Sons: Hoboken, NJ).
  • Geman, H. and Kourouvakalis, S., A lattice-based method for pricing electricity derivatives under the threshold model. Appl. Math. Finance, 2008, 15(6), 531–567.
  • Geman, H. and Roncoroni, A., Understanding the fine structure of electricity prices. J. Bus., 2006, 79(3), 1225–1261.
  • Glasserman, P., Monte Carlo Methods in Financial Engineering, 2003 (Springer: New York).
  • Gulisashvili, A. and Van Casteren, J.A., Non-autonomous Kato Classes and Feynman-Kac Propagators, 2006 (World Scientific: Singapore).
  • Hambly, B., Howison, S. and Kluge, T., Modeling spikes and pricing swing options in electricity markets. Quant. Finance, 2009, 9(8), 937–949.
  • Hayfavi, A. and Talasli, I., Stochastic multifactor modeling of spot electricity prices. J. Comput. Appl. Math., 2014, 259, 434–442.
  • Huisman, R. and Mahieu, R., Regime jumps in electricity prices. Energy Econ., 2001, 25(5), 425–434.
  • Jacod, J., Calcul stochastique et problèmes de martingales. Lecture Notes in Mathematics, Vol. 714, 1979 (Springer: Berlin).
  • Jacod, J. and Shiryaev, A., Limit Theorems for Stochastic Processes, 2003 (Springer: Berlin).
  • Jaimungal, S. and Surkov, V., Lévy-based cross-commodity models and derivative valuation. SIAM J. Financ. Math., 2011, 2(1),464–487.
  • Kjaer, M., Pricing of swing options in a mean-reverting model with jumps. Appl. Math. Finance, 2008, 15(5), 479–502.
  • Klüppelberg, C., Meyer-Brandis, T. and Schmidt, A., Electricity spot price modelling with a view towards extreme spike risk. Quant. Finance, 2010, 10(9), 963–974.
  • Li, J., Li, L. and Mendoza-Arriaga, R., Additive subordination and its applications in finance. Preprint, 2015.
  • Li, L. and Linetsky, V., Time-changed Ornstein-Uhlenbeck processes and their applications in commodity derivative models. Math. Finance, 2014, 24(2), 289–330.
  • Li, L. and Mendoza-Arriaga, R., Equivalent measure changes for subordinate diffusions. Preprint, 2015.
  • Lim, D., Li, L. and Linetsky, V., Evaluating callable and putable bonds: An eigenfunction expansion approach. J. Econ. Dyn. Control, 2012, 36(12), 1888–1908.
  • Lucia, J.J. and Schwartz, E.S., Electricity prices and power derivatives: Evidence from the nordic power exchange. Rev. Derivatives Res., 2002, 5(1), 5–50.
  • Madan, D., Carr, P. and Chang, E.C., The variance Gamma process and option pricing. Eur. Finance Rev., 1998, 2, 79–105.
  • Madan, D. and Yor, M., Representing the CGMY and Meixner Lévy processes as time changed Brownian motions. J. Comput. Finance, 2008, 12(1), 27–47.
  • Mendoza-Arriaga, R., Carr, P. and Linetsky, V., Time changed Markov processes in unified credit-equity modeling. Math. Finance, 2010, 20(4), 527–569.
  • Mendoza-Arriaga, R. and Linetsky, V., Time-changed CIR default intensities with two-sided mean-reverting jumps. Ann. Appl. Probab. 2013, 24 (2), 811–856.
  • Meyer-Brandis, T. and Tankov, P., Multi-factor jump-diffusion models of electricity prices. Int. J. Theor. Appl. Finance, 2008, 11(5),503–528.
  • Nomikos, N.K. and Soldatos, O., Using affine jump diffusion models for modelling and pricing electricity derivatives. Appl. Math. Finance, 2008, 15(1), 41–71.
  • Press, W.H., Teukolsky, S.A., Vetterling, W.T. and Flannery, B.P., Numerical Recipes in C, 2nd ed., 1996 (Cambridge University Press: Cambridge).
  • Protter, P., Stochastic Integration and Differential Equations, 2004 (Springer: Berlin).
  • Sato, K., Lévy Processes and Infinitely Divisible Distributions, 1999 (Cambridge University Press: Cambridge).
  • Schwartz, E.S., The stochastic behavior of commodity prices: Implications for valuation and hedging. J. Finance, 1997, 52(3), 923–973.
  • Singleton, K., Estimation of affine asset pricing models using the empirical characteristic function. J. Econ., 2001, 102, 111–141.
  • Song, R. and Vondraček, Z., On the relationship between subordinate killed and killed subordinate processes. Electron. Commun. Probab., 2008, 13, 325–336.
  • Veraart, A.E. and Veraart, L.A., Modelling electricity day-ahead prices by multivariate Lévy semistationary processes. In Quantitative Energy Finance, edited by F.E. Benth, V.A. Kholodnyi and P. Laurence, pp. 157–188, 2014 (Springer: New York).
  • Weron, R., Market price of risk implied by Asian-style electricity options and futures. Energy Econ., 2008, 30(3), 1098–1115.
  • Weron, R., Bierbrauer, M. and Trück, S., Modelling electricity prices: Jump diffusion and regime switching. Physica A, 2004, 336, 39–48.
  • Yu, J., Closed-form likelihood approximation and estimation of jump-diffusions with an application to the realignment risk of the Chinese Yuan. J. Econometrics, 2007, 141(2), 1245–1280.
  • Zhang, B. and Oosterlee, C., An efficient pricing algorithm for swing options based on Fourier cosine expansions. J. Comput. Finance, 2013, 16(4), 1–32.

Reprints and Corporate Permissions

Please note: Selecting permissions does not provide access to the full text of the article, please see our help page How do I view content?

To request a reprint or corporate permissions for this article, please click on the relevant link below:

Academic Permissions

Please note: Selecting permissions does not provide access to the full text of the article, please see our help page How do I view content?

Obtain permissions instantly via Rightslink by clicking on the button below:

If you are unable to obtain permissions via Rightslink, please complete and submit this Permissions form. For more information, please visit our Permissions help page.