Computational Finance Emulation for Weather, Power and Corresponding Energy Derivatives Instrument Design and Pricing
, Hobart W. Williams Distinguished Service Professor of Operations Management
David K. A. Mordecai, Adjunct Professor of Econometrics and Statistics
Increasing power consumption for computing (e.g., cryptographic token mining, artificial intelligence applications), as well as mesoscale weather volatility with changing environmental conditions, in conjunction with proliferation of intermittent renewable power generation and electrification of transportation and household energy all contribute to amplified volatility across the physical grid system and markets, requiring innovative yet scalably reliable solutions. Concurrent increases in intermittent renewable power supply and changing climate conditions introduce – particularly for prospective new entrants into this market – additional challenges to evaluate opportunities and provide credible financial evidence to potential investors. This project will begin to develop computational tools to enable experimental mechanism design for missing markets and to structure and price corresponding instruments and transactions for weather-dependent operational risk management, hedging and contingent financing across wholesale power and energy sectors.