This website serves the energy market community in the exchange of knowledge.
This non-profit website has been developed in order to provide an easier access to research and articles available in this area, but which is often hard to find.
Our approach:
o Share access to energy market articles
o Post and answer questions
The target user group and audience: (quantitative) analysts, traders, risk managers, researchers, business developers, financial managers, consultants and policy makers.
Erasmus Energy is willing to publish all kinds of articles on energy markets. Main topics are risk-management, trading, valuation and market development. Articles should be relevant and clear.
Erasmus Energy is dependent on active involvement of authors, but if you think Erasmus Energy Library is breaching your copyright or if you have any other comments on the website, please let us know.
Erasmus Energy is provided to you by Kyos Energy Consulting.
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Featured Articles
Realistic power plant valuations
- By Cyriel de Jong
- Published 08/27/2009
- Valuation
-
Rating:
Published in WorldPower 2009
Authors: Henk Sjoerd Los, Hans van Dijken, Cyriel de Jong. KYOS Energy Consulting
The large investments in new power generation assets illustrate the need for proper financial plant evaluations. Traditional net present value (NPV) analysis disregards the flexibility to adjust production decisions to market developments, and thus underestimate true plant value. On the other hand, methods treating power plants as a series of spread options ignore technical and contractual restrictions, and thus overestimate true plant value. In this article we demonstrate the use of volatility and cointegration to incorporate market fundamentals and calculate dynamic, yet reasonable, spread levels and power plant values. A practical case study demonstrates how various technical and market constraints impact plant value. It also demonstrates that plant value may contain considerable option value, but 64% less than with the usual real option approaches. We conclude with an analysis of static and dynamic hedges affecting risk and return profiles
Recent Articles
Valuation of Commodity-Based Swing Options
- By Sergej Obžigailov
- Published 12/13/2011
- Trading strategies
- Unrated
Co-author 1: Patrick Jaillet.Co-author 2: Ehud I. Ronn.
Co-author 3: Stathis Tompaidis.
Abstract
In the energy markets, in particular the electricity and natural gas markets, many contracts incorporate exibility-of-delivery options, known as swing or take-or-pay options. Subject to daily as well as periodic constraints, these contracts permit the option holder to repeatedly exercise the right to receive greater or smaller amounts of energy.
We extract market information from forward prices and volatilities and build a pricing framework for swing options based on a one-factor mean-reverting stochastic process for energy prices which explicitly incorporates seasonal effects. We present a numerical scheme for the valuation of swing options calibrated for the case of natural gas.
Keywords
Swing option, take-or-pay option, mean-reverting stochastic process, seasonal effects in energy prices, natural gas
Link
http://web.mit.edu/jaillet/www/general/swing-last.pdf
