Research On Electricity Contracts Based On Option Theory

As tremendous financial risk are brought to the participants by the power market, bilateral contracts, such as forward contract and future contract are introduced into power market as an efficient risk-managing tool. Various financial products are also brought into power market, and so power contracts or optional forward contracts are well used in competitive market. These contracts not only make components aviod market risk, and also promote efficient operation of the market.This paper studies the pricing and application of power contracts using option and some valuable conclusions are obtained. The main work are in the following two sides:On the one hand, For hedging the market risk,the electrical forward contracts are subjected to the extensive concern and research. Drawing lessons from range forward contracts in foreign exchange financial market, this paper puts forward a new two-way electrical forward contracts, to decrease the bargain risk of the both parties in electrical contracts and steady the market. The model is more practical than general forward contracts for differences, a zone of electric price estimation is provided for two bargainers, that is to say, the price expands for a scope from a point. And each equation of top and bottom limit for the zone is founded, the existence of the solution also is proved. They can be solved by Newton iterative method. Explain to have the same total expectation utility of society with general forward contract for differences from the theoretical studies and numerical emulational analysis. But this range forward contracts has the more ability of hedging the risk. and it can also improve the efficiency of the operation in the electrical forward contractual markets.On the other hand, a coupling option is proposed and in the option the hydropower plant allies with one electric power company to share the hydro risk by way of a electricity forward contracts and several electric coupling options. A compensate mechanism based on no arbitrage principle between hydropower plant and power company is constructed giving consideration to both sides. A practical hydropower plant is selected in the case study and the impact of contract price and volume on the option price and volume is analyzed.This paper's studies provide Chinese power innovation which is recently started,"separation of power plant from grid, and Bidding for Generation", with new ideas and therefore has practical value and theoretical significance.