Modelling spikes and pricing swing options in electricity markets

  title={Modelling spikes and pricing swing options in electricity markets},
  author={Ben Hambly and Sam D. Howison and T. Kluge}
Most electricity markets exhibit high volatilities and occasional distinctive price spikes, which result in demand for derivative products which protect the holder against high prices. In this paper we examine a simple spot price model that is the exponential of the sum of an Ornstein-Uhlenbeck and an independent mean reverting pure jump process. We derive the moment generating function as well as various approximations to the probability density function of the logarithm of the spot price… CONTINUE READING
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