An empirical study of the information premium on electricity markets
Mr Richard Biegler-König, University of Duisburg-Essen The electricity market is special – it features a homogeneous good with prices driven by the technical restriction of the merit order. The most striking distinction to other commodities (and financial assets) is the non-storability of electricity. Hence, the relationship between spot and forward prices cannot be explained by standard no-arbitrage arguments and thus, the classical spot-forward (i.e. the forward equals the expected spot under a risk-neutral measure and the historical filtration) is invalid. There exists an information asymmetry between spot and forward. To illustrate the effect on prices consider the announcement of a power plant to be closed down for, say, maintenance reasons in the future. Obviously, this will result in higher forward prices. Still, this information will have no effect on current spot prices as no arbitrage possibilities arise, i.e. we cannot buy the underlying now and sell in the future. Thus, in our paper we complement the historical filtration as generated by the spot process with additional future information. This is done by means of the mathematical theory of the initial Read more…
Categories: Academic Papers, Electricity and nuclear
Tags: conference 2012, European Energy in a Challenging World
Information-Premium-and-the-German-Atom-Moratorium.pdf 1.07 MBBiegler-König-An-empirical-study-of-the-information-premium-on-electricity-markets.pdf 1.17 MBSep
2012