Description of Colombian  Electricity Pricing Derivatives

Sellamuthu  Prabakaran

doi:10.47747/ijfr.v2i3.394

Authors

Sellamuthu Prabakaran Pontificia Universidad Javeriana de Cali

DOI:

https://doi.org/10.47747/ijfr.v2i3.394

Keywords:

Electricity markets, Energy Derivative, Option, Forward Contract

Abstract

Electricity markets are becoming a popular field of research amongst academics because of the lack of appropriate models for describing electricity price behavior and pricing derivatives instruments. Models for price dynamics must consider seasonality and spiky behavior of jumps which seem hard to model by standard jump process. Without good models for electricity price dynamics, it is difficult to think about good models for futures, forward, swaps and option pricing. In this paper we attempt to introduce an algorithm for pricing derivatives to intuition from Colombian electricity market. The main ambition of this study is fourfold: 1) First we begin our approach through to simple stochastic models for electricity pricing. 2) Next, we derive analytical formulas for prices of electricity derivatives with different derivatives tools. 3) Then we extent short of the model for price risk in the electricity spot market 4) Finally we construct the model estimation under the physical measures for Colombian electricity market. And this paper end with conclusion.

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