scholarly journals Pricing Power Derivatives: A Two-Factor Jump-Diffusion Approach

2003 ◽  
Author(s):  
Pablo Villaplana
Keyword(s):  
Jump Diffusion ◽  
Power Derivatives ◽  
Pricing Power

Pricing power options with a generalized jump diffusion

2016 ◽  
Vol 46 (22) ◽  
pp. 11026-11046 ◽  
Author(s):  
Juan Liao ◽  
Huisheng Shu ◽  
Chao Wei
Keyword(s):  
Jump Diffusion ◽  
Pricing Power

scholarly journals Modelling and Numerical Valuation of Power Derivatives in Energy Markets

2012 ◽  
Vol 4 (03) ◽  
pp. 259-293 ◽  
Author(s):  
Mai Huong Nguyen ◽  
Matthias Ehrhardt
Keyword(s):  
Finite Difference ◽  
Gaussian Quadrature ◽  
Jump Diffusion ◽  
Model Parameters ◽  
Initial Condition ◽  
Swing Options ◽  
Power Derivatives ◽  
Explicit Finite Difference ◽  
Theta Method ◽  
Explicit Finite Difference Method

AbstractIn this work we investigate the pricing of swing options in a model where the underlying asset follows a jump diffusion process. We focus on the derivation of the partial integro-differential equation (PIDE) which will be applied to swing contracts and construct a novel pay-off function from a tree-based pay-off matrix that can be used as initial condition in the PIDE formulation. For valuing swing type derivatives we develop a theta implicit-explicit finite difference scheme to discretize the PIDE using a Gaussian quadrature method for the integral part. Based on known results for the classical theta-method the existence and uniqueness of solution to the new implicit-explicit finite difference method is proven. Various numerical examples illustrate the usability of the proposed method and allow us to analyse the sensitivity of swing options with respect to model parameters. In particular the effects of number of exercise rights, jump intensities and dividend yields will be investigated in depth.

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