The market price of risk for delivery periods: Pricing swaps and options in electricity markets

In electricity markets, futures contracts typically function as a swap since they deliver the underlying over period of time. this paper, we introduce market price for delivery periods swaps, thereby opening an arbitrage-free pricing framework derivatives based on these contracts. Furthermore, use weighted geometric averaging artificial corresponding period. Without any need approximations, results in dynamics. Our allows including typical features Samuelson effect, seasonalities, and stochastic volatility. particular, investigate procedures swaps options line with Arismendi et al., 2016 , Schneider Tavin, 2018 Fanelli Schmeck (2019) . A numerical study highlights differences between models depending • Electricity swaps’ influence derivatives. We risk (MPDP). The MPDP establishes adequate framework. Important effect seasonalities alter MPDP. behavior volatility is adjusted under measure. extended Heston procedure option pricing.