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Researchers at Wroclaw University of Technology Target Mathematical Methods

March 4, 2014



By a News Reporter-Staff News Editor at Journal of Mathematics -- New research on Mathematical Methods is the subject of a report. According to news reporting out of Wroclaw, Poland, by VerticalNews editors, the research stated, "In this paper we derive analytic formulas for electricity derivatives under assumption that electricity spot prices follow a 3-regime Markov regime-switching model with independent spikes and drops and periodic transition matrix. Since the classical derivatives pricing methodology cannot be used in the case of non-storable commodities, we employ the concept of the risk premium."

Our news journalists obtained a quote from the research from the Wroclaw University of Technology, "The obtained theoretical results are then used for the European Energy Exchange data analysis. We calculate the risk premium in the case of the calibrated 3-regime MRS model. We find a time varying structure of the risk premium and an evidence for a negative risk premium (or positive forward premium), especially at short times before delivery."

According to the news editors, the research concluded: "Finally, we use the obtained risk premium to calculate prices of European options written on spot, as well as, forward prices."

For more information on this research see: Pricing electricity derivatives within a Markov regime-switching model: a risk premium approach. Mathematical Methods of Operations Research, 2014;79(1):1-30. Mathematical Methods of Operations Research can be contacted at: Springer Heidelberg, Tiergartenstrasse 17, D-69121 Heidelberg, Germany. (Springer - www.springer.com; Mathematical Methods of Operations Research - www.springerlink.com/content/1432-2994/)

Our news journalists report that additional information may be obtained by contacting J. Janczura, Wroclaw Univ Technol, Hugo Steinhaus Center, Inst Math & Comp Sci, PL-50370 Wroclaw, Poland.

Keywords for this news article include: Poland, Europe, Wroclaw, Mathematical Methods

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Source: Journal of Mathematics


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