The Power Sector Model

David Soronow, Mike Pierce and King Wang, of Financial Engineering Associates, introduce the firm’s Power Sector Model as the next step in derivatives pricing

The deregulation of the energy markets has seen derivatives valuation techniques come to the forefront of the power market practitioner's repertoire of analysis tools. Although most of the derivatives modelling techniques were originally developed for financial markets, over the years researchers have adapted and modified these models to account for the unique nature of energy price behaviour. In this article, we present the next step in this evolution by extending the pure stochastic financial