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Pricing in Electricity Markets: A Mean Reverting Jump Diffusion Model with Seasonality

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  • Alvaro Cartea
  • Marcelo Figueroa

Abstract

This paper presents a mean-reverting jump diffusion model for the electricity spot price and derives the corresponding forward price in closed-form. Based on historical spot data and forward data from England and Wales the model is calibrated and months, quarters, and seasons-ahead forward surfaces are presented.

Suggested Citation

  • Alvaro Cartea & Marcelo Figueroa, 2005. "Pricing in Electricity Markets: A Mean Reverting Jump Diffusion Model with Seasonality," Applied Mathematical Finance, Taylor & Francis Journals, vol. 12(4), pages 313-335.
    • Handle: RePEc:taf:apmtfi:v:12:y:2005:i:4:p:313-335
    DOI: 10.1080/13504860500117503
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    6. Etheridge,Alison, 2002. "A Course in Financial Calculus," Cambridge Books, Cambridge University Press, number 9780521890779.
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    8. Fred Espen Benth & Lars Ekeland & Ragnar Hauge & BjøRn Fredrik Nielsen, 2003. "A note on arbitrage-free pricing of forward contracts in energy markets," Applied Mathematical Finance, Taylor & Francis Journals, vol. 10(4), pages 325-336.
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