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A Two-Factor Model for the Electricity Forward Market
[journal article]
Abstract This paper provides a two-factor model for electricity futures, which captures the main features of the market and fits the term structure of volatility. The approach extends the one-factor-model
of Clewlow and Strickland to a two-factor model and modifies it to make it applicable to the electricity... view more
This paper provides a two-factor model for electricity futures, which captures the main features of the market and fits the term structure of volatility. The approach extends the one-factor-model
of Clewlow and Strickland to a two-factor model and modifies it to make it applicable to the electricity market. We will especially take care of the existence of delivery periods in the underlying futures. Additionally, the model is calibrated to options on electricity futures and its performance for practical application is discussed.... view less
Classification
Economic Statistics, Econometrics, Business Informatics
Economic Sectors
Method
theory application
Free Keywords
Quantitative finance; Weather derivative pricing; Applied mathematical finance; Time series analysis
Document language
English
Publication Year
2009
Page/Pages
p. 279-287
Journal
Quantitative Finance, 9 (2009) 3
DOI
https://doi.org/10.1080/14697680802126530
Status
Postprint; peer reviewed
Licence
PEER Licence Agreement (applicable only to documents from PEER project)