Aarhus University Seal / Aarhus Universitets segl

Electricity price modeling with a European perspective

Troels S√łnderby Christensen (Aalborg Universitet)
Stochastics Seminar
Monday, 14 October, 2019, at 13:15-14:00, in Koll. D (1531-211)

The liberalization of energy markets worldwide during recent decades has introduced severe implications on the price formation in these markets. Especially within the European day-ahead electricity markets, increased physical connections between different market areas and a joint effort on optimizing the aggregate social welfare have led to highly connected markets. Consequently, observing the exact same hourly day-ahead prices for two or more interconnected electricity markets in Europe happens frequently. This affects the modeling of such prices and in turn the valuation of derivatives written on prices from such market areas. In this talk, we will discuss a joint model for day-ahead electricity prices in interconnected markets composed of a combination of transformed Ornstein-Uhlenbeck processes. We discuss the properties of the model and propose an estimation procedure based on filtering techniques. Furthermore, the properties of the model reveal that analytical prices are attainable for e.g. forwards and spread options.


Organised by: math
Contact person: Victor Ulrich Rohde