We propose a new approach to analyze the payoffs of a hybrid capacity option with a daily-varying strike price. We document that the option's payoffs are less than the capacity payments required to attract customer participation. We also present results useful for designing payoff-neutral options to enhance customer participation in a capacityidding program. Our proposed approach is equally applicable for a transparent analysis of the payoffs of other types of exotic capacity options. Copyright © 2018 Elsevier Inc. All rights reserved.
CitationWoo, C. K., Zarnikau, J., Chen, Y., Olson, A., Moore, J., Ho, T., . . . Luo, X. (2018). An empirical analysis of California's hybrid capacity options. The Electricity Journal, 31(2), 7-12. doi: 10.1016/j.tej.2018.02.005
- Hybrid capacity options
- Market-based payoﬀs
- Tradeoﬀ among option attributes