Statistics Seminars: American Call Options for Power System Balancing
26 January 2015 14:00 in CM221
We study the problem of offering American call options on electricity with immediate physical delivery for real-time balancing of a power system. This involves timing the purchase of electricity to physically cover the contract and valuing the call option itself. The real-time price is assumed to be the composition of a price stack function with a stochastic process modelling physical imbalance in an electrical power system. We apply methods of optimal stopping and obtain explicit solutions for the stopping regions and value functions. As a result we are able to characterise when such options are sustainable for the market and to provide optimal operational strategies for the option writer. Joint work with Jan Palczewski (Leeds).
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