A Multifactor Polynomial Framework for Long-Term Electricity Forwards with Delivery Period

@article{KleisingerYu2020AMP,
  title={A Multifactor Polynomial Framework for Long-Term Electricity Forwards with Delivery Period},
  author={Xi Kleisinger-Yu and Vlatka Komaric and Martin Larsson and Markus Regez},
  journal={SIAM J. Financial Math.},
  year={2020},
  volume={11},
  pages={928-957}
}
We propose a multi-factor polynomial framework to model and hedge long-term electricity contracts with delivery period. This framework has various advantages: the computation of forwards and correlation between different forwards are fully explicit, and the model can be calibrated to observed electricity forward curves easily and well. Electricity markets suffer from non-storability and poor medium- to long-term liquidity. Therefore, we suggest a rolling hedge which only uses liquid forward… Expand
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