Research On Power Option Pricing Based On Improved B-S Model

In the context of power market reform,the country requires the uninterrupted operation of power spot pilot,accelerates the construction of power spot market and forms a long-term stable operation of power spot market as soon as possible.With the development and maturity of China’s electricity spot market,China also urgently needs to establish an electricity financial market to cope with the risk of electricity spot price fluctuations.The study of electricity option product pricing is of great significance to the opening of electricity financial market in China in the future.Based on the analysis of the development history of electricity option markets and the design of electricity option contracts in typical foreign countries.this paper conducts a study on the development concept of China’s electricity financial market and the pricing of electricity options in the electricity financial market.Firstly,the development history and contract design of the major electricity option markets in three typical countries,namely,the United States,Northern Europe and Australia,are studied,and the concept of the future development of China’s electricity financial market is proposed by drawing on foreign experience,and the phased objectives and paths of China’s electricity financial market are designed from the initial stage,transition stage and maturity stage;then,the B-S electricity option pricing model is introduced to solve the pricing problem in the electricity option market.Then,in order to solve the pricing problem in the electricity option market,the B-S electricity option pricing model was introduced,and on this basis,in order to make the volatility in the B-S model closer to the underlying real volatility level,the GARCH-B-S electricity option pricing model with GARCH model to calculate the volatility and the improved B-S electricity option pricing model with wavelet variance to calculate the volatility in stages were constructed respectively;finally,the Nordic electricity futures trading data of NASDAQ Futures Exchange was selected to conduct a study on electricity option prices.Finally,the Nordic electricity futures trading data of NASDAQ futures exchange is selected,and the electricity option prices are calculated empirically and compared with the actual prices.The research results found that:the electricity financial market can not only accurately reflect the market supply and demand,reveal the real price of electricity,but also provide various electricity financial derivatives for traders to hedge the risk of electricity price fluctuations;the logarithmic yield series of electricity futures have typical financial yield series characteristics,i.e.,spikes and thick tails,volatility aggregation,smoothness and obvious ARCH effect;the theoretical prices calculated by the three electricity option pricing models and the actual prices are similar to the actual prices.The average absolute error,root mean square error and average absolute percentage error of the theoretical price and the actual price are relatively small,and the price volatility graph is basically the same;the error between the theoretical power option price and the actual option price calculated by the improved B-S model is the smallest and the pricing effect is the best,which is more suitable to be applied to the theoretical pricing of power options.Based on the above research results,the following policy recommendations are put forward for the construction of China’s electricity option market and electricity option pricing in the future:the construction of the electricity financial market needs to be based on the mature spot market,and the electricity market system needs to be improved step by step;the corresponding options and other electricity financial derivatives should be introduced according to the development mode of the domestic electricity market;a more accurate and comprehensive electricity option pricing model should be used to determine the electricity Option prices should be determined by using more accurate and comprehensive power option pricing models;and perfect risk prevention and control measures should be formulated in advance for the power financial market.A reasonable and effective power option pricing model can help power financial market participants better plan their power demand and supply,improve market transparency and efficiency,and contribute to fair and efficient competition in the power market.The improved B-S electricity option pricing model proposed in this paper provides new ideas for the future pricing of China’s electricity option products,which has implications for the future development of China’s electricity financial market and can promote the market-oriented reform of electricity in China.