A structured financial product applied to renewable energies

Manuel Padeira Navarro; Margarida Catalão-Lopes

doi:10.3934/GF.2019.1.82

Green Finance, 2019, 1(1): 82-93. doi: 10.3934/GF.2019.1.82. Research article Special Issues

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A structured financial product applied to renewable energies

Manuel Padeira Navarro, Margarida Catalão-Lopes

1 Instituto Superior Técnico, Universidade de Lisboa, Portugal
2 CEG-IST, Instituto Superior Técnico, Universidade de Lisboa, Av. Rovisco Pais, 1049-001 Lisbon, Portugal

Received: , Accepted: , Published:

Special Issues: Energy Finance

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Faced with the globally spread increase in electricity consumption, renewable energies are rushing to set themselves as leaders on the already ongoing “next energy transition”. It is thus relevant to investigate a new strategy that allows retail investors, producers and financial institutions to benefit from this transition, without jeopardizing consumers, through the creation of a socially responsible structured financial product applied to electricity generation from renewable sources. This paper defines a strategy for the creation of such financial product with special emphasis on the variable element, by further exploring the use of option contracts as the derivative component of our product. To cope with that, we propose the integration of continuous models (such as Black-Scholes) with some of the assumptions of discretized ones to capture and predict the spot price movements in the Iberian energy market. This way we reach for simplicity while capturing the most important moments of “real life” markets, defined by matching both statistical and trajectorial moments using a jump-diffusion mean-reverting model. We conclude that there is in fact a market from which everyone can benefit, but its success is subject to transparency and openness.

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Keywords: derivatives; jump-diffusion; electricity; structured product; renewable energy

Citation: Manuel Padeira Navarro, Margarida Catalão-Lopes. A structured financial product applied to renewable energies. Green Finance, 2019, 1(1): 82-93. doi: 10.3934/GF.2019.1.82

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