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A structural Heath-Jarrow-Morton framework for consistent intraday, spot, and futures electricity prices (1803.08831v3)
Published 23 Mar 2018 in q-fin.MF and math.PR
Abstract: 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. Furthermore, the framework allows for existing day-ahead spot price models to be used in an HJM setting. We include several explicit examples of classical spot price models but also show how structural models and factor models can be formulated within the framework.