Journal Paper

Paper Title - A Black-Scholes Approach For The Pricing Of Electric Power Options In Turkish Power Market


Abstract
The electricity price is a stochastic decision variable which depends on the load, temperature, unit breakdowns, seasonal affects, and workdays etc. Wholesale electricity customers aim to minimize their cost through long term bilateral contracts. One way to deal with the problem is to get electricity options in Turkish derivative markets for future periods which need to be exercised before the expiration date. An option gives the right to consume 0.1 MWH of energy with the strike price for each hour of the month that is the option is exercised. We assume that a wholesale power costumer would like to have options from the market in an effort to get physical energy at the option expiration. The option is exercised only if the strike price is less than the average of the hourly day ahead power prices. This imposes a limit on the strike price that is then used in the Black-Scholes model. Using cyclic behavior of daily power prices and historical price data provided by the market authority, a simple model is developed to forecast the hourly power prices. Then the input is used in Black-Scholes model to estimate the value of the option. A numerical case study is developed and the results are presented. Index Terms— Option Pricing, Black-Scholes Model, Electricity Price Forecasting, Power Trading


Author - Ahmet Yucekaya

Citation - Ahmet Yucekaya   ,   Ahmet Yucekaya " A Black-Scholes Approach For The Pricing Of Electric Power Options In Turkish Power Market " , International Journal of Industrial Electronics and Electrical Engineering , Volume-3, Issue-8  ( Aug, 2015 )

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| Published on 2015-08-05