How Does Pricing of Day-ahead Electricity Market Affect Put Option Pricing?

Abstract

In this paper, impacts of day-ahead market pricing on behavior of producers and consumers in option and day-ahead markets and on option pricing are studied. To this end, two comprehensive equilibrium models for joint put option and day-ahead markets under pay-as-bid and uniform pricing in day-ahead market are presented, respectively. Interaction between put option and day-ahead markets, uncertainty in fuel price, day-ahead market pricing, and elasticity of consumers to strike price, premium price, and day-ahead price are taken into account in these models. By applying the presented models to a test system impact of day-ahead market pricing on equilibrium of joint put option and day-ahead markets are studied.

Keywords

• Equilibrium of joint put option and day-ahead markets
• Option market modeling
• Uniform pricing
• Pay-as-bid pricing
• Put option pricing
• Supply function competition.