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Spot price modeling and the valuation of electricity forward contracts : the role of demand and capacity

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dc.affiliation.dptoUC3M. Departamento de Economía de la Empresaes
dc.contributor.authorCartea González, Álvaro Iván
dc.contributor.authorVillaplana Conde, Pablo
dc.date.accessioned2011-09-22T17:49:32Z
dc.date.available2011-09-22T17:49:32Z
dc.date.issued2008-12
dc.description.abstractWe propose a model where wholesale electricity prices are explained by two state variables: demand and capacity. We derive analytical expressions to price forward contracts and to calculate the forward premium. We apply our model to the PJM, England and Wales, and Nord Pool markets. Our empirical findings indicate that volatility of demand is seasonal and that the market price of demand risk is also seasonal and positive, both of which exert an upward (seasonal) pressure on the price of forward contracts. We assume that both volatility of capacity and the market price of capacity risk are constant and find that, depending on the market and period under study, it could either exert an upward or downward pressure on forward prices. In all markets we find that the forward premium exhibits a seasonal pattern. During the months of high volatility of demand, forward contracts trade at a premium. During months of low volatility of demand, forwards can either trade at a relatively small premium or, even in some cases, at a discount, i.e. they exhibit a negative forward premium
dc.description.statusPublicado
dc.format.mimetypeapplication/pdf
dc.identifier.bibliographicCitationJournal of Banking & Finance, 2008, v. 32, n. 12, pp. 2502-2519
dc.identifier.doi10.1016/j.jbankfin.2008.04.006 
dc.identifier.issn0378-4266
dc.identifier.publicationfirstpage2502
dc.identifier.publicationissue12
dc.identifier.publicationlastpage2519
dc.identifier.publicationtitleJournal of Banking & Finance
dc.identifier.publicationvolume32
dc.identifier.urihttps://hdl.handle.net/10016/12157
dc.language.isoeng
dc.publisherElsevier
dc.relation.isversionofhttp://hdl.handle.net/10016/12082
dc.relation.publisherversionhttp://dx.doi.org/doi:10.1016/j.jbankfin.2008.04.006
dc.rights©Elsevier
dc.rights.accessRightsopen access
dc.subject.ecienciaEmpresa
dc.subject.jelC5
dc.subject.jelG00
dc.subject.jelG12
dc.subject.jelG13
dc.subject.jelQ4
dc.subject.jelQ41
dc.subject.otherPower prices
dc.subject.otherDemand
dc.subject.otherCapacity
dc.subject.otherForward premium
dc.subject.otherForward bias
dc.subject.otherMarket price of capacity risk
dc.subject.otherMarket price of demand risk
dc.subject.otherPJM
dc.subject.otherEngland and Wales
dc.subject.otherNord pool
dc.titleSpot price modeling and the valuation of electricity forward contracts : the role of demand and capacity
dc.typeresearch article*
dc.type.hasVersionAM*
dspace.entity.typePublication
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