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Electricity forward and volatility curves computation based on Monte Carlo simulation

M. Vázquez, J. Barquín, C. Batlle

9th International Conference on Probabilistic Methods Applied to Power Systems - PMAPS 2006, Estocolmo (Suecia). 11-15 junio 2006


Resumen:

As a result of the deregulation processes, liberalized markets, where electricity futures and derivatives are traded, have arisen all over the world. Utilities, consumers, traders and, generally, market agents must do quantitative assessments of their positions. Basic analytical data are the forward and volatility curves of the traded products. However, electricity price dynamics is very different of other commodities prices dynamics. Furthermore, electricity prices of different markets are usually very different of each other. As consequence, most analytical approaches to compute forward and volatility curves, as well as other statistics useful to risk management tasks, are very complex or do not exist. In this paper, we propose to compute the forward and volatility curves by Monte Carlo simulation. The main contribution lies in the used variance reduction techniques, needed to achieve this objective at reasonable computational cost. A case example consisting of the study of the EEX prices is also provided.


Palabras clave: Electricity derivatives, Volatility, Control variates, Variance reduction, Monte Carlo


DOI: DOI icon https://doi.org/10.1109/PMAPS.2006.360340

Fecha de publicación: junio 2006.



Cita:
Vázquez, M., Barquín, J., Batlle, C., Electricity forward and volatility curves computation based on Monte Carlo simulation, 9th International Conference on Probabilistic Methods Applied to Power Systems - PMAPS 2006, Estocolmo (Suecia). 11-15 junio 2006.

IIT-06-056A

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