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Efficient Pricing of Energy Derivatives

Trolle, Anders B.
2014
Energy Pricing Models

I present a tractable framework, first developed in Trolle and Schwartz (2009), for pricing energy derivatives in the presence of unspanned stochastic volatility. Among the model features are i) a perfect fit to the initial futures term structure, ii) a fast and accurate Fourier-based pricing formula for European-style options on futures contracts, enabling efficient calibration to liquid plain-vanilla exchange-traded derivatives, and iii) the evolution of the futures curve being described in terms of a low-dimensional affine state vector, making the model ideally suited for pricing complex energy derivatives and real options by simulation. I also consider an extension of the framework that takes jumps in spot prices into account.

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Type
book part or chapter
Author(s)
Trolle, Anders B.
Date Issued

2014

Publisher

Palgrave Macmillan US

Published in
Energy Pricing Models
ISBN of the book

978-1-137-37734-0

Start page

21

Subjects

Futures

•

Options

•

Unspanned Stochastic Volatility

•

Jumps

Written at

EPFL

EPFL units
SFI-AT  
Available on Infoscience
March 7, 2018
Use this identifier to reference this record
https://infoscience.epfl.ch/handle/20.500.14299/145269
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