Abstract
The framework is based on stochastic processes with economic interpretations and is consistent with the initial forward price curve
Highlights
In recent years the electricity intraday markets have gained increased popularity: the traded volume at the German/Austrian intraday market has grown by 30.3 percent from May 2016 to May 2018 (EPEX, 2017, 2018)
In this paper we introduce a flexible HJM-type framework that allows for consistent modelling of intraday, spot, futures, and option prices
This framework is based on stochastic processes with economic interpretations and consistent with the initial term structure given in the form of a price forward curve
Summary
In recent years the electricity intraday markets have gained increased popularity: the traded volume at the German/Austrian intraday market has grown by 30.3 percent from May 2016 to May 2018 (EPEX, 2017, 2018). Modelling the forward kernel instead of the day-ahead spot price makes this an HJM approach for power prices. We follow the idea of Caldana et al (2017) that the prices of day-ahead spot and futures contracts both should be computed by Equation (1.1). This sounds intuitively since, for example at the German markets, day-ahead spot contracts are traded at least twelve hours before delivery. In other countries such as the US the terminology is different: the day-ahead spot price is commonly referred to as the forward price (Longstaff & Wang, 2004).
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