Abstracts

Structural or hybrid models for electricity prices are models, in which supply and demand of electricity are modelled explicitly. The electricity price is then (as in classical microeconomic theory) given as the intersection of supply and demand. These models have become very popular for electricity spot prices due to the fact that the risk factors driving supply and demand are better understood and easier observable than in most other markets. However, one very important risk factor - import and export - could not be modeled endogenously in such a model. We propose a multi-market extension of the class of Structural models which is able to capture the subtle interplay between separated but coupled electricity markets. Electricity markets are said to be coupled, if they are interconnected and the interconnector capacity is used such that market price differences are minimized. Our model leads to closed form formulae for futures and option prices. Interestingly, it turns out that futures prices in coupled markets might be lower than the lowest corresponding futures price in the same markets without interconnector capacity.