Journal of Energy Markets

Rüdiger Kiesel

University Duisburg–Essen

This special issue of The Journal of Energy Markets contains four papers that were presented at the seventh Energy & Finance Conference in Essen, which took place from October 6 to October 8, 2010. The conference series focuses on recent trends in the modeling and management of risk in the energy markets, with speakers from both industry and academia. The papers in this issue therefore all consider problems of practical relevance and are written by practitioners as well as academics.

The first paper, “On the optimal exercise of swing options in electricity markets”, by Fred Espen Benth, Jukka Lempa and Trygve Kastberg Nilssen, discusses the optimal exercise of swing options in electricity markets. The authors provide a framework in terms of a stochastic control problem and apply Hamilton–Jacobi–Bellmann techniques, obtaining a characterization of the optimal exercise policy in terms of the marginal exercise payout and the lost option value. The results are also illustrated with a numerical example. This paper won one of the “best paper awards” (sponsored by RWE Supply & Trading) at the conference.

In the second paper, “Gas storage valuation using a multifactor price process”, Alexander Boogert and Cyriel de Jong apply a multifactor least-squares Monte Carlo approach to gas storage valuation. The authors provide an extensive sensitivity analysis regarding the impact of a multifactor price process on quantities such as the average storage value and the distribution of storage values. In addition, they compare various hedging strategies.

In a paper entitled “Risk-adequate pricing of retail power contracts”, Markus Burger and Jan Müller discuss the risk-adequate pricing of retail power contracts, identifying various risk factors and analyzing their price impact. In particular, the authors provide a detailed investigation, based on a stochastic model for load and prices, of the impact of price–volume correlation.

The fourth paper, “Power spot price models with negative prices”, by Stefan Schneider, suggests a spot price model that is able to handle negative electricity prices. He applies the area hyperbolic sine transformation to stochastic spot price models and discusses the method empirically for several spot markets. The paper also shows how to value derivatives in such a setting.

A future special issue of The Journal of Energy Markets will cover the latest in this series of conferences, which took place in Rotterdam in October 2011. The next Energy & Finance conference will take place in Trondheim, Norway in fall 2012.