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on Market Microstructure |
| By: | Ren\'e A\"id; Pierre Gruet; Huy\^en Pham |
| Abstract: | We consider the problem of optimal trading for a power producer in the context of intraday electricity markets. The aim is to minimize the imbalance cost induced by the random residual demand in electricity, i.e. the consumption from the clients minus the production from renewable energy. For a simple linear price impact model and a quadratic criterion, we explicitly obtain approximate optimal strategies in the intraday market and thermal power generation, and exhibit some remarkable properties of the trading rate. Furthermore, we study the case when there are jumps on the demand forecast and on the intraday price, typically due to error in the prediction of wind power generation. Finally, we solve the problem when taking into account delay constraints in thermal power production. |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1501.04575&r=mst |
| By: | Jonathan Chiu (Bank of Canada); Thorsten Koeppl (Queen's University) |
| Abstract: | We look at the role of credit ratings when assets are issued in a primary market and sold by dealers into a secondary, over-the-counter market in order to study regulatory proposals for rating agencies. Credit ratings are used to overcome a lemons problem. When the lemons problem is moderate, ratings are used to screen issuers, but are inefficiently inaccurate. Hence, too many lemons are issued in order for dealers to prot from rate shopping where low rating standards lead to high volume, but fragile trading in the secondary market. This inefficiency arises from dealers not properly taking into account the informational rents paid indirectly by investors in the secondary market to primary issuers. We use our framework to show that in-house ratings by investors or competition in the secondary market can lead to more accurate ratings and more stable trading, while promoting in-house ratings by dealers and competition among rating agencies are ineffective. Holding dealers liable or having investors pay for accurate ratings ex-post can also improve efficiency and stability. |
| Keywords: | Ratings, Dealers, Liquidity, Financial Stability |
| JEL: | G01 G14 G18 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1335&r=mst |