Keywords
Futures markets
Monte Carlo simulation
Clearing house
How to Cite
Abstract
Purpose – We propose and analyze a new operating model for an energy futures exchange that could be implemented in Brazil, where there is low liquidity for these contracts. The clearing house temporarily assumes the position of customers who fail to answer the margin call, instead of closing the position, as would normally be done under normal conditions.
Theoretical framework – The main theoretical bases were diffusion processes, with jumps and without jumps, and the pricing model developed by Merton (1976).
Design/methodology/approach – We developed a Monte Carlo simulation model, using diffusion processes, with and without jumps.
Findings – The results show that the proposed model and the insurance option generate relatively low-cost increments for the operation that could be easily absorbed by the clearing house.
Practical & social implications of research – This study will be especially useful for market agents who want to evaluate the implementation of a Brazilian energy exchange, which to date is not available.
Originality/value – The article proposes a new operating model for the Brazilian energy futures market and its results may encourage investment in the sector, which lacks an energy futures exchange.
Keywords: Electricity, futures markets, Monte Carlo simulation, clearing house.
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