Valuation and risk management in the Norwegian electricity market
http://www.erasmusenergy.com/articles/56/1/Valuation-and-risk-management-in-the-Norwegian-electricity-market/Page1.html
Petter Bjerksund
By Petter Bjerksund
Published on 10/1/2007
Keywords:
Published in:
Publication year: 2000
Co-author 1: H. Rasmussen
Co-author 2: G. Stensland
The purpose of this paper is two-fold: Firstly, we analyze option value approximation of traded options in the presence of a volatility term structure. The options are identified as: European (written on the forward price of a future flow delivery); and (ii) Asian. Both types are in fact written on (arithmetic) price averages. Secondly, adopting a 3-factor model for market risk which is compatible with the valuation results, we discuss risk manage- ment in the electricity market within the Value at Risk concept. The analysis is illustrated by numerical cases from the Norwegian electricity derivatives market.
Published in:
Publication year: 2000
Co-author 1: H. Rasmussen
Co-author 2: G. Stensland
The purpose of this paper is two-fold: Firstly, we analyze option value approximation of traded options in the presence of a volatility term structure. The options are identified as: European (written on the forward price of a future flow delivery); and (ii) Asian. Both types are in fact written on (arithmetic) price averages. Secondly, adopting a 3-factor model for market risk which is compatible with the valuation results, we discuss risk manage- ment in the electricity market within the Value at Risk concept. The analysis is illustrated by numerical cases from the Norwegian electricity derivatives market.
Valuation and risk management in the Norwegian electricity market
The purpose of this paper is two-fold: Firstly, we analyze option value approximation of traded options in the presence of a volatility term structure. The options are identified as: European (written on the forward price of a future flow delivery); and (ii) Asian. Both types are in fact written on (arithmetic) price averages. Secondly, adopting a 3-factor model for market risk which is compatible with the valuation results, we discuss risk manage- ment in the electricity market within the Value at Risk concept. The analysis is illustrated by numerical cases from the Norwegian electricity derivatives market.