Energy Options in an HJM Framework

Thomas Lyse Hansen, Bjarne Astrup Jensen

Research output: Working paperResearch

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Abstract

It is a delicate matter to trade spot products and financial derivatives in energy markets. Op-posite to bond and stock markets, the underlying assets are real products and a significant partof the demand for them represents a real need for the products, which can only be substitutedaway with some difficulties or, in some cases, only in a prohibitively costly manner. This isparticularly true in the spot market, where the demand is almost always met, but where thespot price processes can be quite different from the spot price processes conventionally used inthe pricing of derivatives. This pattern of real demand is also the main reason for the existenceof the well-known convenience yield in energy markets.
Original languageEnglish
Place of PublicationKøbenhavn
Number of pages38
Publication statusPublished - 2004

Cite this

Lyse Hansen, T., & Astrup Jensen, B. (2004). Energy Options in an HJM Framework. København.
Lyse Hansen, Thomas ; Astrup Jensen, Bjarne. / Energy Options in an HJM Framework. København, 2004.
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Energy Options in an HJM Framework. / Lyse Hansen, Thomas; Astrup Jensen, Bjarne.

København, 2004.

Research output: Working paperResearch

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AU - Astrup Jensen, Bjarne

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AB - It is a delicate matter to trade spot products and financial derivatives in energy markets. Op-posite to bond and stock markets, the underlying assets are real products and a significant partof the demand for them represents a real need for the products, which can only be substitutedaway with some difficulties or, in some cases, only in a prohibitively costly manner. This isparticularly true in the spot market, where the demand is almost always met, but where thespot price processes can be quite different from the spot price processes conventionally used inthe pricing of derivatives. This pattern of real demand is also the main reason for the existenceof the well-known convenience yield in energy markets.

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Lyse Hansen T, Astrup Jensen B. Energy Options in an HJM Framework. København. 2004.