The Swing options are the natural outcomes of the increasing uncertainty in the power markets, which came along with the deregulation process triggered by the UK government&rsquo / s action
in 1990 to privatize the national electricity supply industry. Since then, the ways of handling the risks in the price generation process have been explored extensively. Producer-consumers of the power market felt confident as they were naturally hedged against the price fluctuations surrounding the large consumers. Companies with high power consumption liabilities on their books demanded tailored financial products that would shelter them from the upside risks while not preventing them from benefiting the low prices.
Furthermore, more effective risk management practices are strongly dependent upon the successful parameterization of the underlying stochastic processes, which is also key to the effective pricing of derivatives traded in the market. In this thesis, we refer to the electricity spot price model developed jointly by Hambly, Howison and Kluge ([13]), which incorporates jumps and still maintains the analytical tractability. We also derive the forward curve dynamics implied by the spot price model and explore the effects on the forward curve dynamics of the spikes in spot price. As the main discussion of this thesis, the Grid Approach, which is a generalization of the Trinomial Forest Method, is applied to the electricity Swing options. We investigate the effects of spikes on the per right values of the Swing options with various number of exercise rights, as well as the sensitivities of the model-implied prices to several parameters.
| Identifer | oai:union.ndltd.org:METU/oai:etd.lib.metu.edu.tr:http://etd.lib.metu.edu.tr/upload/3/12612122/index.pdf |
| Date | 01 June 2010 |
| Creators | Aydin, Nadi Serhan |
| Contributors | Yildirak, Kasirga |
| Publisher | METU |
| Source Sets | Middle East Technical Univ. |
| Language | English |
| Detected Language | English |
| Type | M.S. Thesis |
| Format | text/pdf |
| Rights | To liberate the content for public access |
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