Pricing of fixed budget contingent claims in competitive electricity markets

We consider efficient pricing and hedging of fixed budget electricity derivatives in competitive electricity markets. The price and the customer's consumption are stochastic processes. With the consumption and price processes we formulate the money amount that the customer spends into electricity consumption. This money amount is the underlying asset of the fixed budget contracts. By using the contracts that take into account both market price and demand uncertainties, the customer can budget his/her electricity consumption beforehand. The proposed fixed budget instrument is an important addition to the contract portfolio of an energy retail company, since the ability to fill the customers's needs is one of the key factors to success in energy retail markets. For instance, multinational European industrial customers have requested this type of contracts.