RT Journal Article SR Electronic T1 Pricing of Electricity Swing Options JF The Journal of Derivatives FD Institutional Investor Journals SP 26 OP 43 DO 10.3905/jod.2004.391033 VO 11 IS 3 A1 Jussi Keppo YR 2004 UL https://pm-research.com/content/11/3/26.abstract AB Electricity is one of the most important commodities for both consumers and producers, and it is subject to sharp variations in supply and demand, sometimes within a single day. But it is also one of the most difficult commodities on which to trade derivatives, because electricity is virtually unstorable. This has given rise to contracts such as the “swing option,” which sets minimum and maximum values for both the amount of power to be purchased in each period and also the cumulative amount of electricity purchased over the life of the contract. A swing option thus entails complex timing options with regard to fulfillment of the required minimum cumulative quantity purchased, and price-related options that let the holder buy more when the market price is above the option's strike price, all constrained by the limits on maximum instantaneous and cumulative consumption. In this article, Keppo describes the decision process and presents a swing option valuation model based on simple electricity forwards and options. The use of the approach is illustrated with a couple of examples based on Nord Pool electricity prices.