Empirical Evidence of the Market Price of Risk for Delivery Periods
In this paper, we provide empirical evidence of the market price of risk for delivery periods (MPDP) of electricity swap contracts. The MPDP enables an accurate pricing of such contracts in the presence of the delivery period such that the typical approximations can be avoided. In our empirical stud...
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MDPI AG
2025-01-01
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| Series: | Risks |
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| Online Access: | https://www.mdpi.com/2227-9091/13/1/7 |
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| author | Annika Kemper Maren Diane Schmeck |
| author_facet | Annika Kemper Maren Diane Schmeck |
| author_sort | Annika Kemper |
| collection | DOAJ |
| description | In this paper, we provide empirical evidence of the market price of risk for delivery periods (MPDP) of electricity swap contracts. The MPDP enables an accurate pricing of such contracts in the presence of the delivery period such that the typical approximations can be avoided. In our empirical study, we focus on term-structure effects and identify the resulting MPDP. In presence of the Samuelson effect, we find the most pronounced MPDP close to maturity, while the MPDP disappears proportional to the Samuelson effect far away from maturity. Thus, our theory improves the pricing accuracy close to maturity. |
| format | Article |
| id | doaj-art-8b869f76b72240d1b7e71edb7da4d27a |
| institution | Kabale University |
| issn | 2227-9091 |
| language | English |
| publishDate | 2025-01-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Risks |
| spelling | doaj-art-8b869f76b72240d1b7e71edb7da4d27a2025-01-24T13:48:19ZengMDPI AGRisks2227-90912025-01-01131710.3390/risks13010007Empirical Evidence of the Market Price of Risk for Delivery PeriodsAnnika Kemper0Maren Diane Schmeck1Center for Mathematical Economics (IMW), Bielefeld University, 33615 Bielefeld, GermanyCenter for Mathematical Economics (IMW), Bielefeld University, 33615 Bielefeld, GermanyIn this paper, we provide empirical evidence of the market price of risk for delivery periods (MPDP) of electricity swap contracts. The MPDP enables an accurate pricing of such contracts in the presence of the delivery period such that the typical approximations can be avoided. In our empirical study, we focus on term-structure effects and identify the resulting MPDP. In presence of the Samuelson effect, we find the most pronounced MPDP close to maturity, while the MPDP disappears proportional to the Samuelson effect far away from maturity. Thus, our theory improves the pricing accuracy close to maturity.https://www.mdpi.com/2227-9091/13/1/7electricity swapsdelivery periodMPDP for diffusion riskmean reversionSamuelson effect |
| spellingShingle | Annika Kemper Maren Diane Schmeck Empirical Evidence of the Market Price of Risk for Delivery Periods Risks electricity swaps delivery period MPDP for diffusion risk mean reversion Samuelson effect |
| title | Empirical Evidence of the Market Price of Risk for Delivery Periods |
| title_full | Empirical Evidence of the Market Price of Risk for Delivery Periods |
| title_fullStr | Empirical Evidence of the Market Price of Risk for Delivery Periods |
| title_full_unstemmed | Empirical Evidence of the Market Price of Risk for Delivery Periods |
| title_short | Empirical Evidence of the Market Price of Risk for Delivery Periods |
| title_sort | empirical evidence of the market price of risk for delivery periods |
| topic | electricity swaps delivery period MPDP for diffusion risk mean reversion Samuelson effect |
| url | https://www.mdpi.com/2227-9091/13/1/7 |
| work_keys_str_mv | AT annikakemper empiricalevidenceofthemarketpriceofriskfordeliveryperiods AT marendianeschmeck empiricalevidenceofthemarketpriceofriskfordeliveryperiods |