Cutting Edge: Pure jump models for energy prices

Pure jump models for energy prices

Commodity markets differ from stock and bond markets in several key properties. Supply is determined by production and inventory, with the presence of a quantity risk. Demand is generally inelastic to prices: this is due to essential nature of considered good. The balance of supply and demand can be smoothed by inventories. Non-storability, which uniquely characterises electricity, involves the real-time balancing of supply and demand.

The continuous rebalancing of supply and demand

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