Abstract
We analyse two classes of power derivatives with volume control, tolling agreements and flexible load contracts. Under certain assumptions, we can price a tolling agreement by resorting to theory of flexible load contracts, when using the fuel cost as numeraire in the power price. Tolling agreements can be priced as a strip of spread options under simple set of controls. Finally, we prove a general theory based on dynamic programming for these two classes of derivatives. We base our theory on price dynamics driven by Brownian motion.
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Acknowledgements
We greatly acknowledge financial support from the project “Energy Markets: Modelling, Optimization and Simulation” (EMMOS), funded by the Norwegian Research Council under grant evita-205328.
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Benth, F.E., Eriksson, M. (2013). Energy Derivatives with Volume Controls. In: Kovacevic, R., Pflug, G., Vespucci, M. (eds) Handbook of Risk Management in Energy Production and Trading. International Series in Operations Research & Management Science, vol 199. Springer, Boston, MA. https://doi.org/10.1007/978-1-4614-9035-7_16
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DOI: https://doi.org/10.1007/978-1-4614-9035-7_16
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