Journal of Energy Markets
ISSN:
1756-3607 (print)
1756-3615 (online)
Editor-in-chief: Derek W. Bunn
On the optimal exercise of swing options in electricity markets
Fred Espen Benth, Jukka Lempa, Trygve Kastberg Nilssen
Abstract
ABSTRACT
We study the optimal exercise of a swing option in electricity markets. To this end, we set up a model in terms of a stochastic control problem. In this model, the option can be exercised in continuous time and is subject to a total volume constraint. We analyze some fundamental properties of the model and carry out a numerical analysis. Finally, we illustrate the results numerically.
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