Pricing of monthly forward contracts in the Nord Pool market [An article from: Energy Policy]

by T. Kristiansen

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This digital document is a journal article from Energy Policy, published by Elsevier in 2007. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
This paper investigates whether the pricing of forward contracts in the Nord Pool market is efficient. Monthly forward contracts were introduced in the Nord Pool market in 2003. Likewise, quarterly contracts that will replace seasonal contracts were introduced in 2004. For a transition period these contracts together with the pre-existing seasonal and yearly contracts constitute the forward market. In an efficient forward market the price of a seasonal forward contract should equal the time-weighted average of the underlying monthly forward contracts. In this paper we use historic forward price information to evaluate whether this relationship holds true and find that there are inefficiencies in the pricing.

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