Vazquez, Miguel and Barquín, Julián (2009): Representing the effects of oligopolistic competition on riskneutral prices in power markets.
This is the latest version of this item.

PDF
MPRA_paper_43079.pdf Download (449kB)  Preview 
Abstract
Forward transactions are becoming increasingly important in most of electricity markets. In this view, this paper develops a methodology able to capture the complexities of power markets and incorporate them into the framework of riskneutral probabilities. This is done by the statement of a model that split up the power price dynamics into two different components: on the one hand, a component aimed at representing costs and market power, which will be based on a static, noncooperative game; on the other,a component representing shortterm deviations from the static model.
Item Type:  MPRA Paper 

Original Title:  Representing the effects of oligopolistic competition on riskneutral prices in power markets 
Language:  English 
Keywords:  power markets; pricing models; market power; longterm/shortterm decomposition 
Subjects:  C  Mathematical and Quantitative Methods > C3  Multiple or Simultaneous Equation Models ; Multiple Variables > C32  TimeSeries Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models L  Industrial Organization > L1  Market Structure, Firm Strategy, and Market Performance > L13  Oligopoly and Other Imperfect Markets Q  Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4  Energy > Q40  General C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General > C15  Statistical Simulation Methods: General G  Financial Economics > G1  General Financial Markets > G13  Contingent Pricing ; Futures Pricing C  Mathematical and Quantitative Methods > C7  Game Theory and Bargaining Theory > C72  Noncooperative Games 
Item ID:  43079 
Depositing User:  Miguel Vázquez 
Date Deposited:  08 Jan 2013 14:07 
Last Modified:  29 Mar 2019 06:35 
References:  Aïd, R., Campi, L., Huu, A. N. and Touzi, N. (2009). A structural riskneutral model of electricity prices. International Journal of Theoretical and Applied Finance, 12 (7): pp. 92547. AïtSahalia, Y. (1996). Nonparametric pricing of interest rate derivative securities. Econometrica, 64: pp. 52760. AïtSahalia, Y. and Lo, A. W. (1998). Nonparametric estimation of stateprice densities implicit in financial asset prices. Journal of Finance, 53 (2). Anderson, C. L. and Davison, M. (2008). A hybrid systemeconometric model for electricity spot prices: considering spike sensitivity to forced outage distributions. IEEE Transactions on Power Systems, 23 (3): pp. 92737. Baíllo, Á., Cerisola, S., FernándezLópez, J. M. and Bellido, R. (2006). Strategic bidding in electricity spot markets under uncertainty: a roadmap. Power Engineering Society General Meeting, IEEE. Barlow, M. T. (2002). A diffusion model for electricity prices. Mathematical finance, 12: pp. 28798. Barquín, J., Centeno, E. and Reneses, J. (2004). Medium term generation programming in competitive environments: a new optimization approach for market equilibrium computing. IEE Proceedings  Generation, Transmission and Distribution, 151 (1): pp. 11926. Benth, F. E., Koekebakker, S. and Ollmar, F. (2007). Extracting and applying smooth forward curves from averagebased commodity contracts with seasonal variation. Journal of Derivatives, Fall: pp. 5266. Benth, F. E. and MeyerBrandis, T. (2010). The information premium for nonstorable commodities. Journal of Energy Markets, 2 (3). Bolle, F. (1992). Supply function equilibria and the danger of tacit collusion. The case of pot markets for electricity. Energy Economics, 14: pp. 94102. Borak, S. and Weron, R. (2008). A semiparametric factor model for electricity forward curve dynamics. MPRA Working Paper 10421. Borenstein, S., Bushnell, J., Kahn, E. and Stoft, S. (1995). Market power in California electricity markets. Utilities Policy, 5 (219236). Borovkova, S. and Geman, H. (2006). Analysis and modelling of electricity futures prices. Studies in Nonlinear Dynamics and Econometrics, 10 (3). Bower, J. and Bunn, D. W. (2000). Modelbased comparisons of pool and bilateral markets for electricity. The Energy Journal, 21 (3): pp. 129. Bowley, A. (1924). The mathematical groundwork of Economics. Oxford, Oxford University Press. Box, G. E. and Cox, R. (1964). An analysis of transformations. Journal of the Royal Statistical Society, Series B 26: pp. 21152. Breeden, D. T. and Litzenberger, R. H. (1978). Prices of statecontingent claims implicit in option prices. Journal of Business, 51 (4). Burger, M., Klar, B., Muller, A. and Schindlmayr, G. (2004). A spot market model for pricing derivatives in electricity markets. Quantitative Finance, 4: pp. 10922. Cartea, A. and Villaplana, P. (2008). Spot price modeling and the valuation of electricity forward contracts: the role of demand and capacity. Journal of Banking and Finance, 32 (12): pp. 250219. Clewlow, L. and Strickland, C. (1999). A multifactor model for energy derivatives. University of Technology, Sydney. QFRG Research Paper Series 28. Comte, F. (2004). Kernel deconvolution of stochastic volatility models. Journal of Time Series Analysis, 25 (4): pp. 56382. Coulon, M. and Howison, S. (2009). Stochastic behavior of the electricity bid stack: from fundamental drivers to power prices. The Journal of Energy Markets, 2 (1). Cournot, A. (1838). Recherches sur les principies mathématiques de la théorie des richesses. Paris, Hachette. English Translation: Researches into the mathematical principles of the theory of wealth(1897). Day, C. J., Hobbs, B. F. and Pang, J.S. (2002). Oligopolistic competition in power networks: a conjectured supply function approach. IEEE Transactions on Power Systems, 17 (3): pp. 597607. Duffie, D. (2001). Dynamic asset pricing theory (3rd edition). Princeton, Princeton University Press. Eydeland, A. and Geman, H. (1999). Fundamentals of electricity derivatives. In: Energy Modelling & the Management of Uncertainty. Risk Books. Eydeland, A. and Wolyniec, K. (2003). Energy and power risk management: New developments in modeling, pricing, and hedging. John Wiley & Sons. Fleten, S.E. and Lemming, J. (2003). Constructing forward price curves in electricity markets. Energy Economics, 25: pp. 40924. Franke, J., Härdle, W. and Kreiss, J. P. (2003). Nonparametric estimation in a stochastic volatility model. In: Recent Advances and Trends in Nonparametric Statistics. M. Arritas and D. N. Politis (eds.). Amsterdam, Elsevier. GarcíaAlcalde, A., Ventosa, M., Rivier, M., Ramos, A. and Relaño, G. (2002). Fitting electricity market models. A conjectural variations approach. 14th PSCC, Sevilla, Spain. Garcia, R., Ghysels, E. and Renault, E. (2003). The econometrics of option pricing. In: Handbook of Financial Econometrics. Y. AïtSahalia and L. P. Hansen (eds.). Amsterdam, ElsevierNorth Holland. Green, R. J. and Newbery, D. M. (1992). Competition in the British electric spot market. Journal of Political Economy, 100: pp. 92953. Hamilton, J. D. (1994). Time series analysis. Princeton University Press. Hansen, L. P. and Richard, S. (1987). The role of conditioning information in deducing testable restrictions implied by dynamic asset pricing models. Econometrica, 55: pp. 587613. Harvey, A. C. (1989). Forecasting, structural time series and the Kalman filter. Cambridge University Press. Hashimoto, H. (1985). A spatial Nash equilibrium model. In: Spatial Price Equilibrium: Advances in Theory, Computation and Application. P. Harker (ed.). Berlin, SpringerVerlag. Hastie, T. J. and Tibshirani, R. J. (1990). Generalized additive models. London, Chapman and Hall. Heath, D., Jarrow, R. and Morton, A. (1992). Bond pricing and the term structure of interest rates: A new methodology for contingent claim valuation. Econometrica, 60: pp. 77105. Hutchinson, J. M., Lo, A. W. and Poggio, T. (1994). A nonparametric approach to the pricing and hedging of derivative securities via learning networks. Journal of Finance, 49: pp. 85189. Klemperer, P. D. and Meyer, M. (1989). Supply function equilibria in oligopoly under uncertainty. Econometrica, 57 (6): pp. 124377. Koekkerbaker, S. and Ollmar, F. (2001). Forward curve dynamics in the Nordic electricity market. Norwegian Scool of Economics and Business Administration. Working Paper. Lütkepohl, H. (1993). Introduction to multiple time series analysis. SpringerVerlag. Magill, M. and Quinzii, M. (2002). Theory of incomplete markets. MIT Press. Mount, T. D., Ning, Y. and Cai, X. (2006). Predicting price spikes in electricity markets using a regimeswitching model with timevarying parameters. Energy Economics, 28: pp. 6280. Neuhoff, K., Barquín, J., Boots, M. G., Ehrenmann, A., Hobbs, B. F., Rijkers, F. A. M. and Vázquez, M. (2005). Networkconstrained Cournot models of liberalized electricity markets: The devil is in the details. Energy Economics, 27: pp. 495525. Pilipovic, D. (1997). Energy risk: Valuing and managing energy derivatives. McGrawHill. Rasmusen, E. (1994). Games and information: an introduction to game theory (2nd edition). Blackwell Publishers. Rubinstein, M. (1994). Implied binomial trees. Journal of finance, 49: pp. 771818. SánchezÚbeda, E. F. (1999). Models for data Analysis: Contributions to automatic learning. PhD. Thesis. Universidad Pontificia Comillas. SánchezÚbeda, E. F. and Wehenkel, L. (1998). The Hinges Model: A onedimensional countinuous piecewise polynomial model. Information Processing and Management of Uncertainty in Knowledgebased Systems, Paris. Schweppe, F. C., Caramanis, M. C., Tabors, R. E. and Bohn, R. E. (1988). Spot pricing of electricity. Kluwer Academic Publishers. Skantze, P. L., Gubina, A. and Illic, M. D. (2000). Bidbased stochastic model for electricity prices: the impact of fundamental drivers on market dynamics. Energy Laboratory, MIT. Working Paper MIT EL 00004. Tipping, J., McNickkle, D. and Read, G. (2004). Incorporating storage levels into a model for New Zeland spot prices. IAEE European Conference, Zurich. Tirole, J. (1988). The theory of industrial organization. Cambridge, MIT Press. Weron, R. (2008). Wholesale electricity prices: a review of time series models. In: Financial Markets: Principles of Modelling, Forecasting, and DecisionMaking. W. Milo and P. Wdowinski (eds.). Lodz. FindEcon Monograph Series. 
URI:  https://mpra.ub.unimuenchen.de/id/eprint/43079 
Available Versions of this Item

A fundamental power price model with oligopolistic competition representation. (deposited 10 Jun 2009 06:12)
 Representing the effects of oligopolistic competition on riskneutral prices in power markets. (deposited 08 Jan 2013 14:07) [Currently Displayed]