Option Formulas for Mean-Reverting Power Prices with Spikes

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A spot market model for pricing derivatives in electricity markets (2004, unknown): “Common approaches are to assume a zero market price of risk for certain (non-hedgeable) short-term risk factors, such as jumps ([8], [9]) or to calibrate (cid:12)rst with respect to the statistical measure using spot price data and then to imply a risk premium or risk-neutral drift from the futures…”
Spot and Derivative Pricing in the EEX Power Market (2007, methodology): “However, following the literature on spot price modeling of electricity prices (e.g. Ethier and Mount, 1998; Huisman and Mahieu, 2003; Haldrup and Nielsen, 2004; Weron et al., 2004a) there seems to be a preference for adjusting the data for seasonal effects before the stochastic component is…”
Forecasting Electricity Prices (2003, background): “This constraint is relaxed in de Jong and Huisman (2002). The two-state model proposed assumes a stable mean-reverting regime and an independent spike regime of log-normal prices.”