Post by Sapphire Capital on Jul 22, 2008 21:38:12 GMT 4
Exercising Flexible Load Contracts: Two Simple Strategies
PETTER BJERKSUND
affiliation not provided to SSRN
BJARTE MYKSVOLL
Viz Risk Management Services AS
GUNNAR STENSLAND
affiliation not provided to SSRN
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Applied Stochastic Models in Business & Industry, Vol. 24, No. 2, pp. 93-107, March/April 2008
Abstract:
A flexible load contract is a type of swing option where the holder has the right to receive a given quantity of electricity within a specified period, at a fixed maximum effect (delivery rate). The contract is flexible, in the sense that delivery (the take hours) is called one day in advance. We investigate two simple strategies for managing flexible load contracts, where both use price information from the forward market. For 10 contracts traded in the period 1997-2001, we calculate the performance of the two strategies and compare with the reported performance of one complex dynamic programming approach as well as the actual results obtained by three anonymous market participants. The comparison indicates that our simple computer-efficient strategies perform better on average and produces more stable results.
papers.ssrn.com/sol3/papers.cfm?abstract_id=1145195
PETTER BJERKSUND
affiliation not provided to SSRN
BJARTE MYKSVOLL
Viz Risk Management Services AS
GUNNAR STENSLAND
affiliation not provided to SSRN
--------------------------------------------------------------------------------
Applied Stochastic Models in Business & Industry, Vol. 24, No. 2, pp. 93-107, March/April 2008
Abstract:
A flexible load contract is a type of swing option where the holder has the right to receive a given quantity of electricity within a specified period, at a fixed maximum effect (delivery rate). The contract is flexible, in the sense that delivery (the take hours) is called one day in advance. We investigate two simple strategies for managing flexible load contracts, where both use price information from the forward market. For 10 contracts traded in the period 1997-2001, we calculate the performance of the two strategies and compare with the reported performance of one complex dynamic programming approach as well as the actual results obtained by three anonymous market participants. The comparison indicates that our simple computer-efficient strategies perform better on average and produces more stable results.
papers.ssrn.com/sol3/papers.cfm?abstract_id=1145195