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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: A firm energy market for Colombia is presented: the ability to provide energy in a dry period - the product needed for reliability in Colombia's hydro-dominated electricity market.
Abstract: A firm energy market for Colombia is presented. Firm energy—the ability to provide energy in a dry period—is the product needed for reliability in Colombia’s hydro-dominated electricity market. The firm energy market coordinates investment in new resources to assure that sufficient firm energy is available in dry periods. Load procures in an annual auction enough firm energy to cover its needs. The firm energy product includes both a financial call option and the physical capability to supply firm energy. The call option protects load from high spot prices and improves the performance of the spot market during scarcity. The market provides strong performance incentives through the spot energy price. Market power is addressed directly: existing resources cannot impact the firm energy price. Since load is hedged from high spot prices, the market can rely on high prices to balance supply and demand during dry periods, rather than rationing.
64 citations
TL;DR: In this paper, the authors consider the problem of an electric-power marketer offering a fixed-price forward contract to provide electricity that it purchases from a potentially volatile and unpredictable spot energy market and show how the marketer can estimate the spot price relationship between two wholesale energy markets for the purpose of cross hedging, as well as the optimal hedge and the forward contract's baseline price and risk premium.
63 citations
01 Jan 2011
63 citations
TL;DR: In this article, the authors extend existing commodity valuation models to allow for stochastic volatility and simultaneous jumps in the spot price and spot volatility, and obtain closed-form valuation formulas for forwards, futures, futures options, geometric Asian options and commodity-linked bonds.
Abstract: This paper extends existing commodity valuation models to allow for stochastic volatility and simultaneous jumps in the spot price and spot volatility. Closed-form valuation formulas for forwards, futures, futures options, geometric Asian options and commodity-linked bonds are obtained using the Heston (1993) and Bakshi and Madan (2000) methodology. Stochastic volatility and jumps do not affect the futures price at a given point in time. However, numerical examples indicate that they play important roles in pricing options on futures.
63 citations
TL;DR: In this paper, a dynamic equilibrium model of storable commodities populated by producers, dealers, and households is constructed, which leads to lower equilibrium excess returns on futures, a more frequently upwardsloping futures curve, and higher volatility in futures and spot markets.
Abstract: I construct a dynamic equilibrium model of storable commodities populated by producers, dealers, and households. When financial innovation allows households to trade in futures markets, they choose a long position that leads to lower equilibrium excess returns on futures, a more frequently upward-sloping futures curve, and higher volatility in futures and spot markets. The effect on spot price levels is modest, and extremely high spot prices only occur in conjunction with low inventories and poor productivity. Therefore such "financialization'' of commodities may explain several recently observed changes in spot and futures market dynamics, but it cannot directly account for a large increase in spot prices.
62 citations