R. Kovacevic:
"Arbitrage Conditions for Electricity Markets with Production and Storage";
Research Reports (Vienna University of Technology, Institute of Statistics and Mathematical Methods in Economics, Operations Research and Control Systems), 2018-03 (2018), 3; 23 S.

Kurzfassung englisch:
We consider a market at which electricity is produced from fuel. Several generators, fuel storage, and the related costs are considered. Based on stochastic optimization in Banach spaces, we derive a necessary and a sufficient no-arbitrage conditions and analyze them further in the context of (potentially nonlinearly) autoregressive price models. For this large class of statistical models, it is found that the necessary condition can be rejected only in very unrealistic cases. The sufficient condition, however, leads to a simple logical constraint that can be used for restricted parameter estimation and for testing the hypothesis of absence of arbitrage. Finally, we analyze the
consequences of these findings for contract valuation and for tree construction in the stochastic optimization context.

Electricity production, arbitrage, stochastic discount factor, duality theory

Elektronische Version der Publikation:

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