Title: Pricing wind power futures
Authors: Brenda Lopez Cabrera - Humboldt Universität zu Berlin (Germany) [presenting]
Awdesch Melzer - Humboldt University zu Berlin (Germany)
Wolfgang Haerdle - HU Berlin (Germany)
Abstract: With increasing wind power penetration more and more volatile and weather dependent energy is fed into the German electricity system. Wind power derivatives were introduced to manage the risk of windless days and transfer the risk of unstable revenue streams from wind turbine owners to third parties. These insurance-like contracts allow to hedge the risk of unstable wind power production on exchanges like Nasdaq, European Energy Exchange. The pricing of wind power derivatives has been only theoretically studied either with GARCH(1,1)-CAR(p) or employing wavelets. We present a new method to price weather derivatives with very skewed data incorporating extreme events in modeling seasonal volatility and compare with previos approaches in transformed Gaussian and pure non-Gaussian CARMA(p; q) models. Our results indicate that our transformed Gaussian CARMA(p; q) model is preferred over the non-Gaussian alternative with Levy increments. The calibration of the empirical market price of risk shows typical behavior for futures and forwards in electricity markets.