IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2303.12527.html
   My bibliography  Save this paper

The Market Price of Jump Risk for Delivery Periods: Pricing of Electricity Swaps with Geometric Averaging

Author

Listed:
  • Annika Kemper
  • Maren Diane Schmeck

Abstract

In this paper, we extend the market price of risk for delivery periods (MPDP) of electricity swap contracts by introducing a dimension for jump risk. As introduced by Kemper et al. (2022), the MPDP arises through the use of geometric averaging while pricing electricity swaps in a geometric framework. We adjust the work by Kemper et al. (2022) in two directions: First, we examine a Merton type model taking jumps into account. Second, we transfer the model to the physical measure by implementing mean-reverting behavior. We compare swap prices resulting from the classical arithmetic (approximated) average to the geometric weighted average. Under the physical measure, we discover a decomposition of the swap's market price of risk into the classical one and the MPDP.

Suggested Citation

  • Annika Kemper & Maren Diane Schmeck, 2023. "The Market Price of Jump Risk for Delivery Periods: Pricing of Electricity Swaps with Geometric Averaging," Papers 2303.12527, arXiv.org, revised Dec 2023.
    • Handle: RePEc:arx:papers:2303.12527
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2303.12527
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Xi Kleisinger-Yu & Vlatka Komaric & Martin Larsson & Markus Regez, 2019. "A multi-factor polynomial framework for long-term electricity forwards with delivery period," Papers 1908.08954, arXiv.org, revised Jun 2020.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Thomas Deschatre & Olivier F'eron & Pierre Gruet, 2021. "A survey of electricity spot and futures price models for risk management applications," Papers 2103.16918, arXiv.org, revised Jul 2021.
    2. Deschatre, Thomas & Féron, Olivier & Gruet, Pierre, 2021. "A survey of electricity spot and futures price models for risk management applications," Energy Economics, Elsevier, vol. 102(C).
    3. Fred Espen Benth, 2021. "Pricing of Commodity and Energy Derivatives for Polynomial Processes," Mathematics, MDPI, vol. 9(2), pages 1-30, January.
    4. Peilun He & Nino Kordzakhia & Gareth W. Peters & Pavel V. Shevchenko, 2024. "PDSim: A Shiny App for Polynomial Diffusion Model Simulation and Estimation," Papers 2409.19385, arXiv.org.
    5. Kemper, Annika & Schmeck, Maren Diane, 2023. "Pricing of Electricity Swaps with Geometric Averaging," Center for Mathematical Economics Working Papers 676, Center for Mathematical Economics, Bielefeld University.

    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:arx:papers:2303.12527. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    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.