Stochastic Modeling of Wind Derivatives in Energy Markets
AbstractWe model the logarithm of the spot price of electricity with a normal inverse Gaussian (NIG) process and the wind speed and wind power production with two Ornstein–Uhlenbeck processes. In order to reproduce the correlation between the spot price and the wind power production, namely between a pure jump process and a continuous path process, respectively, we replace the small jumps of the NIG process by a Brownian term. We then apply our models to two different problems: first, to study from the stochastic point of view the income from a wind power plant, as the expected value of the product between the electricity spot price and the amount of energy produced; then, to construct and price a European put-type quanto option in the wind energy markets that allows the buyer to hedge against low prices and low wind power production in the plant. Calibration of the proposed models and related price formulas is also provided, according to specific datasets. View Full-Text
Share & Cite This Article
Benth, F.E.; Di Persio, L.; Lavagnini, S. Stochastic Modeling of Wind Derivatives in Energy Markets. Risks 2018, 6, 56.
Benth FE, Di Persio L, Lavagnini S. Stochastic Modeling of Wind Derivatives in Energy Markets. Risks. 2018; 6(2):56.Chicago/Turabian Style
Benth, Fred E.; Di Persio, Luca; Lavagnini, Silvia. 2018. "Stochastic Modeling of Wind Derivatives in Energy Markets." Risks 6, no. 2: 56.
Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.