A note on arbitrage-free pricing of forward contracts in energy markets

  • Fred Espen Benth
  • Lars Ekeland
  • Ragnar Hauge
  • Bjørn Fredrik Nielsen


  • Journal: Applied Mathematical Finance, vol. 10, p. 325–336, 2003
  • Utgiver: Taylor & Francis
  • Internasjonale standardnumre:
    • Trykt: 1350-486X
    • Elektronisk: 1466-4313
  • Lenke:

Arbitrage theory is used to price forward (futures) contracts in energy markets, where the underlying assets are non‐tradeable. The method is based on the so‐called ‘fitting of the yield curve’ technique from interest rate theory. The spot price dynamics of Schwartz is generalized to multidimensional correlated stochastic processes with Wiener and Lévy noise. Findings are illustrated with examples from oil and electricity markets.