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Pricing of monthly forward contracts in the Nord Pool market

โœ Scribed by Tarjei Kristiansen

Publisher
Elsevier Science
Year
2007
Tongue
English
Weight
204 KB
Volume
35
Category
Article
ISSN
0301-4215

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โœฆ Synopsis

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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