Contents -- Preface -- 1. A Survey of Electricity and Related Markets -- 1.1 The electricity markets -- 1.1.1 Electricity contracts with physical delivery . -- 1.1.2 Financial electricity contracts -- 1.2 The gas market -- 1.2.1 Futures and options on gas -- 1.3 The temperature market -- 1.4 Other related energy markets -- 1.5 Stochastic modelling of energy markets -- 1.5.1 Spot price modelling -- 1.5.2 Forward and swap pricing in electricity and related markets -- 1.6 Outline of the book -- 2. Stochastic Analysis for Independent Increment Processes -- 2.1 Definitions -- 2.2 Stochastic integration with respect to martingales -- 2.3 Random jump measures and stochastic integration -- 2.4 The Lévy-Kintchine decomposition and semimartingales -- 2.5 The Itˆo Formula for semimartingales -- 2.6 Examples of independent increment processes -- 2.6.1 Time-inhomogeneous compound Poisson process -- 2.6.2 Models based on the generalized hyperbolic distribu- tions -- 2.6.3 Models based on the Variance-Gamma and CGMY distributions -- 3. Stochastic Models for the Energy Spot Price Dynamics -- 3.1 Introduction -- 3.2.1 Geometric models -- 3.2.2 Arithmetic models -- 3.3 The autocorrelation function of multi-factor Ornstein- Uhlenbeck processes -- 3.4 Simulation of stationary Ornstein-Uhlenbeck processes: a case study with the arithmetic spot model -- 4. Pricing of Forwards and Swaps Based on the Spot Price -- 4.1 Risk-neutral forward and swap price modelling -- 4.1.1 Risk-neutral probabilities and the Esscher transform -- 4.1.2 The Esscher transform for some specific models -- 4.2 Currency conversion for forward and swap prices -- 4.3 Pricing of forwards -- 4.3.1 The geometric case -- 4.3.2 The arithmetic case . -- 4.4 Pricing of swaps -- 4.4.1 The geometric case -- 4.4.2 The arithmetic case -- 5. Applications to the Gas Markets -- 5.1 Modelling the gas spot price.

5.1.1 Empirical analysis of UK gas spot prices -- 5.1.2 Residuals modelled as a mixed jump-diffusion process -- 5.1.3 NIG distributed residuals -- 5.2 Pricing of gas futures -- 5.3 Inference for multi-factor processes -- 5.3.1 Kalman filtering -- 6. Modelling Forwards and Swaps Using the Heath-Jarrow- Morton Approach -- 6.1 The HJM modelling idea for forward contracts -- 6.2 HJM modelling of forwards -- 6.3 HJM modelling of swaps -- 6.3.1 Swap models based on forwards -- 6.4 The market models -- 6.4.1 Modelling with jump processes -- 7. Constructing Smooth Forward Curves in Electricity Markets -- 7.1 Swap and forward prices -- 7.1.1 Basic relationships -- 7.1.2 A continuous seasonal forward curve -- 7.2 Maximum smooth forward curve -- 7.2.1 A smooth forward curve constrained by closing prices -- 7.2.2 A smooth forward curve constrained by bid and ask spreads -- 7.3 Putting the algorithm to work . -- 7.3.1 Nord Pool example I: A smooth curve -- 7.3.2 Nord Pool example II: Preparing a data set and analysing volatility -- 8. Modelling of the Electricity Futures Market -- 8.1 The Nord Pool market and financial contracts -- 8.2 Preparing data sets . -- 8.3 Descriptive statistics -- 8.4 A market model for electricity futures -- 8.5 Principal component analysis -- 8.5.1 Principal component analysis of the total data set -- 8.5.2 Principal component analysis for individual market segments -- 8.6 Estimating a parametric multi-factor market model -- 8.6.1 Seasonal volatility -- 8.6.2 Maturity volatilities -- 8.7 Normalised logreturns and heavy tails -- 8.8 Final remarks -- 9. Pricing and Hedging of Energy Options -- 9.1 Pricing and hedging options on forwards and swaps -- 9.1.1 The case of no jumps - the Black-76 Formula -- 9.1.2 The case of jumps -- 9.2 Exotic Options -- 9.2.1 Spread options -- 9.2.2 Asian options.

9.3 Case Study: Valuation of spark spread options - a direct approach . -- 9.3.1 Modelling and analysis of spark spread options -- 10.2Modelling the dynamics of temperature -- 10.3 Empirical analysis of Stockholm temperature dynamics -- 10.3.1 Description of the data -- 10.3.2 Estimating the CAR(p) models -- 10.3.2.1 Fitting an AR(1) model -- 10.3.2.2 Fitting an AR(3) model -- 10.3.2.3 Identification of the parameters in the CAR(p) model -- 10.4 Temperature derivatives pricing -- 10.4.1 CAT futures -- 10.4.3 Frost Day index futures -- 10.4.4 Application to futures on temperatures in Stockholm -- Appendix A List of abbreviations -- Bibliography -- Index.