Estimation and Optimization Problems in Power Markets

The book presents a sophisticated bivariate regime-switching model designed to simultaneously capture the dynamics of electricity and gas prices. It details the process for calibrating model parameters using historical market data, which serves as a foundation for managing the portfolio and risks of a gas power plant. The second part addresses the valuation and optimal operation of the power plant through stochastic dynamic programming, demonstrating how forward contracts can mitigate specific spot price risks in the electricity market. The existence and uniqueness of solutions are established, along with numerical analyses of various factor models.