Journal of Computational Finance

Pricing Energy Derivatives by Linear Programming: Tolling Agreement Contracts

Valeriy Ryabchenko, Stan Uryasev


We introduce a new approach for pricing energy derivatives known as tolling agreement contracts. The pricing problem is reduced to a linear program.We prove that the optimal operating strategy for a power plant can be expressed through optimal exercise boundaries (similar to the exercise boundaries for American options). We find the boundaries as a byproduct of the pricing algorithm. The suggested approach can incorporate various real-world power plant operational constraints.We demonstrate computational efficiency of the algorithm by pricing one-year and ten-year tolling agreement contracts.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to View our subscription options

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here