Stochastic Modeling of Wind Derivatives in Energy Markets

@inproceedings{Benth2018StochasticMO,
  title={Stochastic Modeling of Wind Derivatives in Energy Markets},
  author={Fred E. Benth and Luca Di Persio and Silvia Lavagnini},
  year={2018}
}
We model the logarithm of the spot price of electricity with a normal inverse Gaussian (NIG) process and the wind speed and wind power production with two Ornstein–Uhlenbeck processes. In order to reproduce the correlation between the spot price and the wind power production, namely between a pure jump process and a continuous path process, respectively, we replace the small jumps of the NIG process by a Brownian term. We then apply our models to two different problems: first, to study from the… CONTINUE READING

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