Simulation for Pricing Electricity Consumptions in Nigeria and Hedging of Generation and Transmission Costs

Oyediran Benjamin Oyelami^{1, 2,} and Adedamola Adewumi Adedoyin³

¹National Mathematical Centre Abuja, Nigeria

²Department of Mathematics Plateau State University, Bokkos, Nigeria

³Department of Mathematics University of Abuja, Nigeria

Cite this paper:
Oyediran Benjamin Oyelami and Adedamola Adewumi Adedoyin. Simulation for Pricing Electricity Consumptions in Nigeria and Hedging of Generation and Transmission Costs. American Journal of Modeling and Optimization. 2015; 3(1):7-21. doi: 10.12691/ajmo-3-1-2

Abstract

In this paper, simulations are carried to obtain fair electricity tariff for domestic consumption in Nigeria using the Ornstein-Uhlenbeck model and Monte Carlo method. The fair price also determined for transmission companies to buy electricity from the generating companies through European option derivative contracts. The fair price for a call option using Monte Carlo simulation is found to be 0.310 Naira and put price written by transmission companies to the distribution companies is found to be 0.307 Naira and finally, price sensitivity analyses for companies’ portfolio are made also.

Keywords:
model electricity tariff European option Monte Carlo simulation price sensitivity analyses

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