IDEAS home Printed from https://ideas.repec.org/a/taf/quantf/v19y2019i8p1321-1337.html
   My bibliography  Save this article

On the seasonality in the implied volatility of electricity options

Author

Listed:
  • Viviana Fanelli
  • Maren Diane Schmeck

Abstract

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.

Suggested Citation

  • Viviana Fanelli & Maren Diane Schmeck, 2019. "On the seasonality in the implied volatility of electricity options," Quantitative Finance, Taylor & Francis Journals, vol. 19(8), pages 1321-1337, August.
    • Handle: RePEc:taf:quantf:v:19:y:2019:i:8:p:1321-1337
    DOI: 10.1080/14697688.2019.1582792
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/14697688.2019.1582792
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/14697688.2019.1582792?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Piccirilli, Marco & Schmeck, Maren Diane & Vargiolu, Tiziano, 2021. "Capturing the power options smile by an additive two-factor model for overlapping futures prices," Energy Economics, Elsevier, vol. 95(C).
    2. Kemper, Annika & Schmeck, Maren Diane & Kh.Balci, Anna, 2022. "The market price of risk for delivery periods: Pricing swaps and options in electricity markets," Energy Economics, Elsevier, vol. 113(C).
    3. Dimitrios Kontogiannis & Dimitrios Bargiotas & Aspassia Daskalopulu & Athanasios Ioannis Arvanitidis & Lefteri H. Tsoukalas, 2022. "Error Compensation Enhanced Day-Ahead Electricity Price Forecasting," Energies, MDPI, vol. 15(4), pages 1-21, February.
    4. Farshid Mehrdoust & Idin Noorani, 2023. "Valuation of Spark-Spread Option Written on Electricity and Gas Forward Contracts Under Two-Factor Models with Non-Gaussian Lévy Processes," Computational Economics, Springer;Society for Computational Economics, vol. 61(2), pages 807-853, February.
    5. Kemper, Annika & Schmeck, Maren Diane & Khripunova Balci, Anna, 2020. "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 University.
    6. Pierre, Erwan & Schneider, Lorenz, 2024. "Intermittently coupled electricity markets," Energy Economics, Elsevier, vol. 130(C).
    7. Maren Diane Schmeck & Stefan Schwerin, 2021. "The Effect of Mean-Reverting Processes in the Pricing of Options in the Energy Market: An Arithmetic Approach," Risks, MDPI, vol. 9(5), pages 1-19, May.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:quantf:v:19:y:2019:i:8:p:1321-1337. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RQUF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.