CapOptix: An Options-Framework for Capacity Market Pricing
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arXiv
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| Hauptverfasser: | , , , , |
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| Format: | Preprint |
| Veröffentlicht: |
2025
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| _version_ | 1866918248885256192 |
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| author | Roy, Millend Capponi, Agostino Pyltsov, Vladimir Hu, Yinbo Modi, Vijay |
| author_facet | Roy, Millend Capponi, Agostino Pyltsov, Vladimir Hu, Yinbo Modi, Vijay |
| contents | Electricity markets are under increasing pressure to maintain reliability amidst rising renewable penetration, demand variability, and occasional price shocks. Traditional capacity market designs often fall short in addressing this by relying on expected-value metrics of energy unserved, which overlook risk exposure in such systems. In this work, we present CapOptix, a capacity pricing framework that interprets capacity commitments as reliability options, i.e., financial derivatives of wholesale electricity prices. CapOptix characterizes the capacity premia charged by accounting for structural price shifts modeled by the Markov Regime Switching Process. We apply the framework to historical price data from multiple electricity markets and compare the resulting premium ranges with existing capacity remuneration mechanisms. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2512_12871 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | CapOptix: An Options-Framework for Capacity Market Pricing Roy, Millend Capponi, Agostino Pyltsov, Vladimir Hu, Yinbo Modi, Vijay Systems and Control Computational Finance Pricing of Securities Applications Electricity markets are under increasing pressure to maintain reliability amidst rising renewable penetration, demand variability, and occasional price shocks. Traditional capacity market designs often fall short in addressing this by relying on expected-value metrics of energy unserved, which overlook risk exposure in such systems. In this work, we present CapOptix, a capacity pricing framework that interprets capacity commitments as reliability options, i.e., financial derivatives of wholesale electricity prices. CapOptix characterizes the capacity premia charged by accounting for structural price shifts modeled by the Markov Regime Switching Process. We apply the framework to historical price data from multiple electricity markets and compare the resulting premium ranges with existing capacity remuneration mechanisms. |
| title | CapOptix: An Options-Framework for Capacity Market Pricing |
| topic | Systems and Control Computational Finance Pricing of Securities Applications |
| url | https://arxiv.org/abs/2512.12871 |