NDLI: VALUING ELECTRICITY ASSETS IN DEREGULATED MARKETS: A REAL OPTIONS MODEL WITH MEAN REVERSION AND JUMPS

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VALUING ELECTRICITY ASSETS IN DEREGULATED MARKETS: A REAL OPTIONS MODEL WITH MEAN REVERSION AND JUMPS

Content Provider	AgEcon Search
Author	Ethier, Robert G.
Abstract	Valuation of electricity generating assets is of central importance as utilities are forced to spin-off generators with the introduction of competitive markets. A continuous-time mean reverting price path with stochastic upward jumps is proposed as an appropriate model for long-run competitive electricity prices faced by a generator. A real options model is derived via dynamic programming using infinite series solutions. The derived model produces asset values which are uniformly higher than those produced by existing models, and which accurately predict observed generator sale prices. The model has favorable implications for stranded cost recovery and generator entry in competitive markets.
Related Links	https://ageconsearch.umn.edu/record/7222/files/wp990003.pdf
Page Count	39
File Format	PDF
DOI	10.22004/ag.econ.7222
Language	English
Publisher Date	1999-01-01
Access Restriction	Open
Subject Keyword	Applied Economics Agricultural Economics Agri-economic Open Access Database Research in Applied Economics Research in Agricultural Economics Higher Study On Agricultural Economics Higher Study On Applied Economics Agricultural Research Documents Agrarian Economy & Research Higher Study Agri-economics Research in Economics Agri-economic Open Access Repository Statistics in Agricultural Economics Real Options Electricity Deregulation Mean Reversion Jump Processes Asset Valuation
Content Type	Text
Resource Type	Article
Subject	Economics, Econometrics and Finance

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