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Spot contract
About: Spot contract is a research topic. Over the lifetime, 3437 publications have been published within this topic receiving 91599 citations.
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TL;DR: In this article, an explanation for the forward premium puzzle in foreign exchange markets based upon investor overcon-dence is proposed. But the model is not consistent with the availability of table carry trade strategies.
Abstract: We oer an explanation for the forward premium puzzle in foreign exchange markets based upon investor overcon…dence In the model, overcon…dent individuals overreact to their information about future in‡ation, which causes greater overshooting in the forward rate than in the spot rate Thus, when agents observe a signal of higher future in‡ation, the consequent rise in the forward premium predicts a subsequent downward correction of the spot rate The model can explain the magnitude of the forward premium bias and several other stylized facts related to the joint behavior of forward and spot exchange rates Our approach is also consistent with the availability of pro…table carry trade strategies
106 citations
TL;DR: In this article, the authors present and estimate a model of the prices of oil and other storable commodities, a model that can be characterized as reflecting the carry trade, focusing on speculative factors, here defined as the trade-off between interest rates on the one hand and market participants' expectations of future price changes on the other hand.
105 citations
TL;DR: In this paper, a stochastic factor based approach to mid-term modeling of spot prices in deregulated electricity markets is presented, where the fundamentals affecting the spot price are modeled independently and a market equilibrium model combines them to form spot price.
105 citations
TL;DR: In this article, the authors calculate the likely reduction of wholesale prices through this merit order effect on the Australian National Electricity Market, and explore the implications of their findings for feed-in tariff policies, and find that they could deliver savings to consumers.
103 citations
TL;DR: In this article, the authors proposed and implemented a model in which the spot price of power is a function of two state variables: demand (load) and fuel price, and solved for this market price of risk function using inverse problem techniques and power forward prices from the PJM market.
Abstract: Pricing contingent claims on power presents numerous challenges due to (1) the unique behavior of power prices, and (2) time-dependent variations in prices. We propose and implement a model in which the spot price of power is a function of two state variables: demand (load) and fuel price. In this model, any power derivative price must satisfy a PDE with boundary conditions that reflect capacity limits and the non-linear relation between load and the spot price of power. Moreover, since power is non-storable and demand is not a traded asset, the power derivative price embeds a market price of risk. Using inverse problem techniques and power forward prices from the PJM market, we solve for this market price of risk function. During 1999–2001, the upward bias in the forward price was as large as $50/MWh for some days in July. By 2005, the largest estimated upward bias had fallen to $19/MWh. These large biases are plausibly due to the extreme right skewness of power prices; this induces left skewness in the payoff to short forward positions, and a large risk premium is required to induce traders to sell power forwards. This risk premium suggests that the power market is not fully integrated with the broader financial markets.
103 citations