The price is right?
For banks entering the physical power markets the opportunities are many, but pricing contracts in these volatile markets is fraught with difficulties. Aarzoo Shah, Riccardo Anacar and Antony Kakoudakis look at how to tackle these challenges
For new entrants, building up experience in the electricity markets is no easy task. Developing a presence in the underlying physical markets is both time-consuming and costly. Three years are generally necessary to build up a worthwhile book. Pricing of forward contracts is proving a particularly knotty issue, with firms hampered by the non-standard nature of contracts, lack of standard pricing methods and unavailability of reliable pricing tools. In addition, the scarcity of highly experienced
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