Modelling Electricity Futures by Ambit Fields

Abstract

In this paper we propose a new modelling framework for electricity futures markets based on so-calledambit fields. The new model can capture many of the stylised facts observed in electricity futures and is highly analytically tractable. We discuss martingale conditions, option pricing, and change of measure within the new model class. Also, we study the corresponding model for the spot price, which is implied by the new futures model, and show that, under certain regularity conditions, the implied spot price can be represented in law as a volatility modulated Volterra process.