Temporary water transfers, as achievable under option contracts, capture gains from trade that would go unrealized if only permanent transfers of water rights were possible. This paper develops a bilateral option contracting model for water which includes the possibility of conveyance losses and...

The most basic and important object for any company trading energy commodities is a so-called Price Forward Curve, or PFC, providing prices in a fine granularity for a future period of time. Clearly, the PFC must be free of arbitrage with respect to the relevant set of forward prices at all...

We study the hedging problem for European-style options written on crude-oil futures. Locally risk-minimizing hedging strategies are derived under the assumption that the dynamics of crude-oil futures are described by a Merton-type jump-diffusion. These are then tested empirically using...

Electricity markets feature a non-storable underlying, which implies the break down of traditional cash-and-carry arguments as well as the well-known spot-forward relationship. We introduce the notion of information premium to describe the influence of future information - such as planned power...

We consider the model risk inherent in the valuation procedure of fossil power plants. To capture model risk we use risk-capturing functionals, a methodology recently established in a series of papers. As gas-fired power plants are seen as flexible and low-carbon sources of electricity which are...

This paper analyzes the valuation of day-ahead Physical Transmission Rights (PTRs) on the German-Dutch interconnector. From a financial perspective, PTRs are options written on the difference between the German and Dutch hourly electricity prices. We propose a model for the valuation of...

This paper analyzes the valuation of monthly Physical Transmission Rights (PTRs) on the German-Dutch interconnector. From a financial perspective, PTRs are exchange options written on the German and Dutch day-ahead electricity price. We extend the famous exchange option model by Margrabe (1978)...

We value two real options related to offshore petroleum production. We consider expansion of an offshore oil field by tying in a satellite field, and the option of early decommissioning. Even if the satellite field is not profitable to develop at current oil prices, the option to tie in such...

Aiming to study pricing of long-dated commodity derivatives, this paper presents a class of models within the Heath, Jarrow, and Morton (1992) framework for commodity futures prices that incorporates stochastic volatility and stochastic interest rate and allows a correlation structure between...