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Valuation of electricity swing options by multistage stochastic programming. (English) Zbl 1177.90299
Summary: Electricity swing options are Bermudan-style path-dependent derivatives on electrical energy. We consider an electricity market driven by several exogenous risk factors and formulate the pricing problem for a class of swing option contracts with energy and power limits as well as ramping constraints. Efficient numerical solution of the arising multistage stochastic program requires aggregation of decision stages, discretization of the probability space, and reparameterization of the decision space. We report on numerical results and discuss analytically tractable limiting cases.

MSC:
90C15 Stochastic programming
93A30 Mathematical modelling of systems (MSC2010)
90C90 Applications of mathematical programming
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