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Stochastic Modelling of Energy Spot Prices by LSS Processes

  • Ole E. Barndorff-Nielsen
  • Fred Espen Benth
  • Almut E. D. Veraart
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  • 628 Downloads
Part of the Probability Theory and Stochastic Modelling book series (PTSM, volume 88)

Abstract

In this chapter we apply Lévy semistationary processes for modelling electricity spot price data collected from the European Energy Exchange. In our study, we demonstrate the flexibility of this class of processes and their ability to explain the rather erratic behaviour of power prices. We focus on the Brownian semistationary process with generalised hyperbolic marginals, which is a model class that is also relevant in turbulence. As an application of the spot model, we price energy forward contracts by computing the risk-adjusted conditional expected value of the spot at time of delivery. The Esscher transform is presented as the tool to construct risk-adjusted probability measures, also called pricing measures.

Keywords

Electricity Spot Prices Esscher Transform European Energy Exchange (EEX) Forward Price Equivalent Probability Measure 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer Nature Switzerland AG 2018

Authors and Affiliations

  • Ole E. Barndorff-Nielsen
    • 1
  • Fred Espen Benth
    • 2
  • Almut E. D. Veraart
    • 3
  1. 1.Department of MathematicsUniversity of AarhusAarhusDenmark
  2. 2.Department of MathematicsUniversity of OsloOsloNorway
  3. 3.Department of MathematicsImperial College LondonLondonUK

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