The information premium for non-storable commodities

Espen Benth, Fred und Meyer-Brandis, Thilo (2009): The information premium for non-storable commodities. In: The Journal of Energy Markets, Bd. 2, Nr. 3: S. 111-140

Abstract

For non-storable commodities forward looking information about market con-ditions is not necessarily incorporated in today's prices, and the standard assumption that the information filtration is generated by the asset is fundamentally wrong. Electricity and weather are the typical markets we have in mind. We discuss pricing of forward con-tracts on non-storable commodities based on an enlargement of the information filtration. The method is able to incorporate future information of the spot, which is not accounted for in the present spot price behaviour. The notions of information drift and premium are introduced, and we argue that significant parts of the supposedly irregular market price of risk observed in electricity markets is in reality due to information miss-specification in the model. Some examples based on Brownian motion and Lévy processes and the theory of initial enlargement of filtrations are considered, where we are able to shed some insight into the nature of the information drift and premium being relevant for the elec-tricity markets. The examples include cases where we take temperature forecasts and CO2 emission costs into account when pricing electricity forwards.

• Dokumententyp: Zeitschriftenartikel
• Fakultät: Mathematik, Informatik und Statistik > Mathematik > Finanz- und Versicherungsmathematik
• Themengebiete: 500 Naturwissenschaften und Mathematik > 510 Mathematik
• ISSN: 17563607
• Sprache: Englisch