TY - JOUR
T1 - Valuation of electricity storage contracts using the COS method
AU - Boonstra, Boris C.
AU - Oosterlee, Cornelis W.
N1 - Publisher Copyright:
© 2021 The Authors
PY - 2021/12/1
Y1 - 2021/12/1
N2 - Storage of electricity has become increasingly important, due to the gradual replacement of fossil fuels by more variable and uncertain renewable energy sources. In this paper, we provide details on how to mathematically formalize a corresponding electricity storage contract, taking into account the physical limitations of a storage facility and the operational constraints of the electricity grid. We give details of a valuation technique to price these contracts, where the electricity prices follow a structural model based on a stochastic polynomial process. In particular, we show that the Fourier-based COS method can be used to price the contracts accurately and efficiently.
AB - Storage of electricity has become increasingly important, due to the gradual replacement of fossil fuels by more variable and uncertain renewable energy sources. In this paper, we provide details on how to mathematically formalize a corresponding electricity storage contract, taking into account the physical limitations of a storage facility and the operational constraints of the electricity grid. We give details of a valuation technique to price these contracts, where the electricity prices follow a structural model based on a stochastic polynomial process. In particular, we show that the Fourier-based COS method can be used to price the contracts accurately and efficiently.
KW - COS method
KW - Electricity prices
KW - Electricity storage
KW - Fourier-cosine expansions
KW - Polynomial processes
KW - Valuation
UR - http://www.scopus.com/inward/record.url?scp=85108453966&partnerID=8YFLogxK
U2 - 10.1016/j.amc.2021.126416
DO - 10.1016/j.amc.2021.126416
M3 - Article
AN - SCOPUS:85108453966
SN - 0096-3003
VL - 410
JO - Applied Mathematics and Computation
JF - Applied Mathematics and Computation
M1 - 126416
ER -