The valuation of clean spread options: linking electricity, emissions and fuels

DOI10.1080/14697688.2012.750733zbMATH Open1280.91163arXiv1205.2302OpenAlexW2072369698MaRDI QIDQ5745656FDOQ5745656

Authors: Michael Coulon, René Carmona, Daniel Schwarz 

Publication date: 30 January 2014

Published in: Quantitative Finance (Search for Journal in Brave)

Abstract: The purpose of the paper is to present a new pricing method for clean spread options, and to illustrate its main features on a set of numerical examples produced by a dedicated computer code. The novelty of the approach is embedded in the use of structural models as opposed to reduced-form models which fail to capture properly the fundamental dependencies between the economic factors entering the production process.

Full work available at URL: https://arxiv.org/abs/1205.2302

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zbMATH Keywords

electricity marketsspread optionsemission marketsreal asset valuation

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60)

Cites Work

• Backward stochastic differential equations and partial differential equations with quadratic growth.
• Stochastic modeling of electricity and related markets.
• Market design for emission trading schemes
• Pricing and Hedging Spread Options
• A DIFFUSION MODEL FOR ELECTRICITY PRICES
• The Pearson Diffusions: A Class of Statistically Tractable Diffusion Processes
• Dynamic behavior of CO\(_2\) spot prices
• Risk-neutral models for emission allowance prices and option values

Cited In (5)

• Modeling spark spread option and power plant evaluation
• Optimal generation and trading in solar renewable energy certificate (SREC) markets
• A mean‐field game approach to equilibrium pricing in solar renewable energy certificate markets
• Risk-neutral pricing of financial instruments in emission markets: A structural approach
• Pricing renewable identification numbers under uncertainty

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