Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
979166 | Physica A: Statistical Mechanics and its Applications | 2006 | 9 Pages |
Abstract
We present a method for the valuation of two types of cross-commodity electricity options, European spark spread options and locational spread options. Since the underlying assets here are non-tradeable, the methodology of Black–Scholes–Merton cannot be directly applied. Nevertheless, assuming only absence of arbitrage we provide a closed-form analytic formula for the price of the derivatives in the case where the spot prices of the underlying process follow an exponential Ornstein–Uhlenbeck process.
Keywords
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Physical Sciences and Engineering
Mathematics
Mathematical Physics
Authors
D. Tsitakis, S. Xanthopoulos, A.N. Yannacopoulos,