Brown Bag Seminar: A Copula-Based Approach for the Pricing of Energy Quanto Options

This work proposes a novel pricing methodology for Energy Quanto Options (EQOs), derivative instruments which aim to mitigate the joint risk from temperature and electricity price fluctuations. We employ a copula-based approach, ensuring maximum flexibility in the modeling of codependence and the ability to capture tail risk. This pricing methodology leads to an explicit, closed-form solution, independent of Monte Carlo methods.