Article ID: | iaor20091179 |
Country: | United Kingdom |
Volume: | 24 |
Issue: | 2 |
Start Page Number: | 93 |
End Page Number: | 107 |
Publication Date: | Mar 2008 |
Journal: | Applied Stochastic Models in Business and Industry |
Authors: | Bjerksund Petter, Myksvoll Bjarte, Stensland Gunnar |
Keywords: | performance, programming: dynamic |
A flexible load contract is a type of swing option where the holder has the right to receive a given quantity of electricity within a specified period, at a fixed maximum effect (delivery rate). The contract is flexible, in the sense that delivery (the take hours) is called one day in advance. We investigate two simple strategies for exercising flexible load contracts, where both use price information from the forward market. For 10 contracts traded in the period 1997–2001, we calculate the performance of the two strategies and compare with the reported performance of one complex dynamic programming approach as well as the actual results obtained by three anonymous market participants. The comparison indicates that our simple computer-efficient strategies perform better on average and produce more stable results.