A structural Heath-Jarrow-Morton framework for consistent intraday, spot, and futures electricity prices

TL;DR

This paper introduces a flexible HJM-type framework for modeling intraday, spot, futures, and option prices in electricity markets, ensuring consistency with initial term structures and allowing integration of existing models.

Contribution

It develops a comprehensive HJM framework that unifies various electricity price models and incorporates economic interpretations and initial term structures.

Findings

Framework is consistent with initial forward curves

Allows integration of classical and structural models

Enables modeling of multiple electricity price types

Abstract

In this paper we introduce a flexible HJM-type framework that allows for consistent modelling of intraday, spot, futures, and option prices. This framework is based on stochastic processes with economic interpretations and consistent with the initial term structure given in the form of a price forward curve. Furthermore, the framework allows for existing day-ahead spot price models to be used in an HJM setting. We include several explicit examples of classical spot price models but also show how structural models and factor models can be formulated within the framework.