• Media type: E-Book
  • Title: Electricity Swing Option Pricing by Stochastic Bilevel Optimization: a Survey and New Approaches
  • Contributor: Kovacevic, Raimund M. [Author]; Pflug, Georg Ch. [Author]
  • imprint: Humboldt-Universität zu Berlin, Mathematisch-Naturwissenschaftliche Fakultät II, Institut für Mathematik, 2013-05-13
  • Language: English
  • DOI: https://doi.org/10.18452/8434
  • Keywords: Stackelberg game ; pricing ; stochastic optimization ; swing option ; bilevel optimization
  • Origination:
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  • Description: We demonstrate how the problem of determining the ask price for electricityswing options can be considered as a stochastic bilevel program with asymmetricinformation. Unlike as for financial options, there is no way for basingthe pricing method on no-arbitrage arguments. Two main situations are analyzed:if the seller has strong market power he/she might be able to maximizehis/her utility, while in fully competitive situations he/she will just look for aprice which makes profit and has acceptable risk. In both cases the seller hasto consider the decision problem of a potential buyer - the valuation problemof determining a fair value for a specific option contract - and anticipate thebuyer's optimal reaction to any proposed strike price. We also discuss somemethods for finding numerical solutions of stochastic bilevel problems witha special emphasis on using duality gap penalizations.
  • Access State: Open Access
  • Rights information: In Copyright