Hedging Strategy and Electricity Contract Engineering - IFOR

170 Case study
Spot price process
d
1.5 [CHF/MWh]
2.2 [-] 2
amp
y 5.6 [CHF/MWh]
3
û
90 [CHF/MWh]
Demand process
2000 [-] 2 39 [CHF/MWh]
0.45 [-] 2
amp
ò
d
150 [MWh]
2.3 [-] 2
amp
y 418 [MWh]
û
2000 [-] 2 1650 [MWh]
0.15 [-] 2
amp
ò
3
3000 [MWh]
Tab. 7.1: Parameters describing the spot price process and the demand process.
The stochastic factors are modelled in 250 scenarios and since the positions in
the swing options cannot be changed within the two week horizon, only the
n
aggregated demand D k
m 1 D kã i together with the spot price S iâ k and
inflow I
ë
k are of interest and will be modelled. The driving process of the spot
price as for the swing option demand is a mixed mean reverting diffusion and
jump process as in (2.5), where the seasonality is modeled as in (2.4). A jump
only lasts for one period and a spot price jump occurs with û
a frequency of
2.2, whereas a demand jump occurs with a frequency of 2.3. The other relevant
parameters describing the spot price process and demand process are given in
Table 7.1. 1 The spot price is slightly correlated with the swing option demand
in the sense that the random variable determining if a spot price jump occurs
or not has a correlation of 0.10 to the random variable determining if a demand
jump occurs or not. The inflow is modelled by the simple diffusion process
d I t dt ò dW t Ü
where is given by 1080 [MWh] and ò by 90 [MWh]. The parameters are
estimated on the basis of historical data.
1 To account for the weekend effect on demand, an additional variable is added to the demand
mean reversion level in (2.4). This variable has the value -150 [MW] for all hours
on Saturdays, -200 [MW] for all hours on Sundays and 0 for all hours on weekdays.
Observe further that time is measured in years.