Energy Storage Systems and Variability Swaps, IV.

Building a collection of variability kernels

Let’s continue our series on symmetric storage systems as “variability swaps.” We previously said that…

future posts in this series will consider a wider range of variability swap kernels. We will also return to the theme of reflexivity and what the classical variance swap can teach us about the development of feedback loops as markets become increasingly open and mature.

Energy Storage Systems and Variability Swaps

So let’s build a set of candidate variability swap ‘kernels’ and reflect on how they might be used to express market views. At the same time the kernels will be lenses through which to review market developments.

You may spot that there are a two gaps in the Day-Ahead data that I’ve been collecting from EPEX Spot. As I’ve said throughout, I’m not collecting this data in any serious or comprehensive way, but merely for exploratory and discussion purposes. To the extent that you find these experiments interesting enough to follow-up on, please double-check everything with your own data and let me know any problems and deviations. As I hope you’ve realised, stratnergy is purely for fun. I’d argue it represents the most fun you can have with a newsletter in the energy industry.

Plain Vanilla: Day-Ahead High/Low Swap

We covered the idea of swapping fixed payments for variable payments based on spreads between daily high and low DA prices in the first post in this series.

Energy Storage Systems and Variance Swaps

So let’s ease into this by looking at DA High/Low spread as a kernel.