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A spot market model for pricing derivatives in electricity markets

Author

Listed:
  • Markus Burger
  • Bernhard Klar
  • Alfred Muller
  • Gero Schindlmayr

Abstract

In this paper, we analyse the evolution of prices in deregulated electricity markets. We present a general model that simultaneously takes into account the following features: seasonal patterns, price spikes, mean reversion, price dependent volatilities and long term non-stationarity. We estimate the parameters of the model using historical data from the European Energy Exchange. Finally, we demonstrate how it can be used for pricing derivatives via Monte Carlo simulation.

Suggested Citation

  • Markus Burger & Bernhard Klar & Alfred Muller & Gero Schindlmayr, 2004. "A spot market model for pricing derivatives in electricity markets," Quantitative Finance, Taylor & Francis Journals, vol. 4(1), pages 109-122.
    • Handle: RePEc:taf:quantf:v:4:y:2004:i:1:p:109-122
    DOI: 10.1088/1469-7688/4/1/010
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