Put Option Pricing and Its Effects on Day-Ahead Electricity Markets

In this paper, the impacts of strike and premium prices of put option contracts on put option and day-ahead electricity markets are studied. To this end, first a comprehensive equilibrium model for a joint put option and day-ahead markets is presented. Interaction between put option and day-ahead markets, uncertainty in demand, and elasticity of consumers to strike price, premium price, and day-ahead price are taken into account in this model. Then, a formula for computing strike prices at which producers and consumers are willing to trade put option is presented and a new method for put option pricing is proposed. By applying the presented model to a test system, the interaction between the put option and day-ahead markets is studied.

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