Option Formulas for Mean-Reverting Power Prices with Spikes
نویسندگان
چکیده
منابع مشابه
Option Formulas for Mean-Reverting Power Prices with Spikes
Electricity prices are known to be very volatile and subject to frequent jumps due to system breakdown, demand shocks, and inelastic supply. Appropriate pricing, portfolio, and risk management models should incorporate these spikes. We develop a framework to price European-style options that are consistent with the possibility of market spikes. The pricing framework is based on a regime jump mo...
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Using spectral decomposition techniques and singular perturbation theory, we develop a systematic method to approximate the prices of a variety of options in a fast mean-reverting stochastic volatility setting. Four examples are provided in order to demonstrate the versatility of our method. These include: European options, up-and-out options, double-barrier knock-out options, and options which...
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Here, the expected value is taken under an appropriate risk-adjusted measure. Furthermore, VT and IT represent the project’s value and amount to be invested, respectively, at time T . If the project can be started at anytime, then (1.1) is modified to its American counterpart. In this case, the maturity date T is replaced by a stopping time τ (0 ≤ τ ≤ T ) and the investor chooses the stopping t...
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ژورنال
عنوان ژورنال: SSRN Electronic Journal
سال: 2002
ISSN: 1556-5068
DOI: 10.2139/ssrn.324520