Journal of Energy Markets

Risk.net

Valuation of power swing options

Nadi Serhan Aydın and Martin Rainer

ABSTRACT

Swing options have emerged as efficient tools for managing power price risk. Bundled with electricity forward contracts, they address the need for some structural flexibility in both the time and volume of the contracted delivery. We present an efficient numerical method to evaluate power swing options, using a state-space forest in combination with an analytic approximation of the conditional densities of the underlying processes. We consider a multi-Ornstein-Uhlenbeck model for the real spot price extracted from Nord Pool Elspot for the period 2008-10. As a particular extension to previous studies, positive and negative spikes are modeled as separate mean reverting stochastic processes. We present some numerical results and investigate option price characteristics through the option value surface.

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 Risk.net? View our subscription options

You need to sign in to use this feature. If you don’t have a Risk.net 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