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Electricity prices and power derivatives: evidence from the Nordic Power Exchange. (English) Zbl 1064.91508
Summary: This paper examines the importance of the regular pattern in the behavior of electricity prices, and its implications for the purposes of derivative pricing. We analyze the Nordic Power Exchange’s spot, futures, and forward prices. We conclude that the seasonal systematic pattern throughout the year, in particular, is of crucial importance in explaining the shape of the futures/forward curve. Moreover, in the context of the one and two factor models analyzed, a simple sinusoidal function is adequate in order capture the seasonal pattern of the features and forward curve directly implied by the seasonal behavior of spot electricity prices.

MSC:
91B74 Economic models of real-world systems (e.g., electricity markets, etc.)
91B24 Microeconomic theory (price theory and economic markets)
91G20 Derivative securities (option pricing, hedging, etc.)
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