Power plant Greeks

The computation of the price sensitivities - otherwise known as the Greeks - of a power plant is essential for proper hedging and risk management. However, due to the complexity and difficulty involved in the modelling of generation characteristics and constraints of a power plant, the efficient calculation of the true Greeks is still a challenge.

Erjiang Sun and Ongun Alsac derive a Monte Carlo estimator for calculating the Greeks of a power plant based on the pathwise derivative estimates and the likelihood ratio derivative estimates.

In the risk management world, a Greek measures the sensitivity of the value of an asset or a portfolio of assets to a small change in a given underlying parameter (e.g. price, volatility, time-to-expiration)