Electricity Derivatives by René Aïd

Author:René Aïd
Language: eng
Format: epub
Publisher: Springer International Publishing, Cham

In this incomplete market setting, there are infinitely many equivalent martingale measures such that . But it is possible here to design a change of measure that will satisfy the former relation and to allow a perfect fit of the initial forward curve in certain conditions. This change of measure—based on Esscher’s transform—is parameterised by a deterministic function of the time . In the NIG model (3.24–3.25), the forward prices are given by:

(3.26)

Thus, if at time zero, there are forward prices for delivery at the non-overlapping maturities and if one chooses a piece-wise constant function on the interval , then satisfies:

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