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JSRI 2007, 3(2): 203-221 Back to browse issues page
Numerical Methods of Option Pricing for Two Specific Models of Electricity Prices
Shiva Zamani *
, zamani@sharif.edu
Abstract:   (3153 Views)

In this work, two models are proposed for electricity prices as energy commodity prices which in addition to mean-reverting properties have jumps and spikes, due to non-storability of electricity. The models are simulated using an Euler scheme, and then the Monte-Carlo method is used to estimate the expectation of the discounted cash-flow under historical probability, which is considered as the option price. A so called random variable simulation and a control variate method are then used to decrease, the discretization error and the Monte-Carlo error, respectively. As the option prices satisfy PDE's associated with the models, by solving these PDE's, numerically, we can find the option prices by a second method, thereby being able to make comparisons.

Keywords: Electricity prices, mean-reversion, spikes, Monte-Carlo method.
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Type of Study: Research | Subject: General
Received: 2016/02/13 | Accepted: 2016/02/13 | Published: 2016/02/13
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Zamani S. Numerical Methods of Option Pricing for Two Specific Models of Electricity Prices. JSRI. 2007; 3 (2) :203-221
URL: http://jsri.srtc.ac.ir/article-1-169-en.html

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Volume 3, Issue 2 (3-2007) Back to browse issues page
مجله‌ی پژوهش‌های آماری ایران Journal of Statistical Research of Iran JSRI
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