arXiv · arXiv q-fin · 2026
Battery energy storage systems (BESS) participating in multi-market electricity trading require price forecasts to optimize dispatch decisions. A widely held assumption is that forecast accuracy, measured by standard metrics such as mean absolute error (MAE), drives trading performance. We challenge this assumption using a hierarchical three-layer optimization system trading simultaneously on frequency containment re…
Alessandro Falezza
arXiv · arXiv q-fin · 2026
We present an approximate dynamic programming framework for designing degradation-aware market participation policies for battery energy storage systems. The approach employs a tailored value function approximation that reduces the state space to state of charge and battery health, while performing dynamic programming along a pseudo-time axis encoded by state of health. This formulation enables an offline/online comp…
Flemming Holtorf, Sungho Shin
arXiv · arXiv q-fin · 2026
We develop a stochastic game-theoretic model for intraday dispatch of grid-scale battery energy storage systems (BESSs). We assume that each BESS operator competitively manages her state-of-charge to maximize energy arbitrage revenues, driven by the endogenized electricity price that depends on the sum of the charging rates. We characterize the Nash equilibrium of the resulting finite-player linear-quadratic differen…
Ruimeng Hu, Mike Ludkovski, Hezhong Zhang
arXiv · arXiv q-fin · 2025
Maximizing revenue for grid-scale battery energy storage systems in continuous intraday electricity markets requires strategies that are able to seize trading opportunities as soon as new information arrives. This paper introduces and evaluates an automated high-frequency trading strategy for battery energy storage systems trading on the intraday market for power while explicitly considering the dynamics of the limit…
David Schaurecker, David Wozabal, Nils Löhndorf, Thorsten Staake
arXiv · arXiv q-fin · 2025
Energy storage promotes the integration of renewables by operating with charge and discharge policies that balance an intermittent power supply. A key challenge in this emerging sector is how to optimize the operation of storage assets given future price uncertainties and the need to recover the costs of project finance while ensuring an attractive return on equity and hedging against downside risk. This study invest…
Gabriel D. Patrón, Di Zhang, Lavinia M. P. Ghilardi, Evelin Blom, Maldon Goodridge
arXiv · arXiv q-fin · 2024
This paper is devoted to the price-storage dynamics in natural gas markets. A novel stochastic path-dependent volatility model is introduced with path-dependence in both price volatility and storage increments. Model calibrations are conducted for both the price and storage dynamics. Further, we discuss the pricing problem of discrete-time swing options using the dynamic programming principle, and a deep learning-bas…
Jinniao Qiu, Antony Ware, Yang Yang
arXiv · arXiv q-fin · 2022
Arbitrage is one important revenue source for energy storage in electricity markets. However, a large amount of storage in the market will impact the energy price and reduce potential revenues. This can lead to strategic behaviors of profit-seeking storage investors. To study the investors' strategic storage investments, we formulate a non-cooperative game between competing investors. Each investor decides the storag…
Dongwei Zhao, Mehdi Jafari, Audun Botterud, Apurba Sakti
arXiv · arXiv q-fin · 2016
In this paper we consider an energy storage optimization problem in finite time in a model with partial information that allows for a changing economic environment. The state process consists of the storage level controlled by the storage manager and the energy price process, which is a diffusion process the drift of which is assumed to be unobservable. We apply filtering theory to find an alternative state process w…
Anton A. Shardin, Michaela Szölgyenyi
arXiv · arXiv q-fin · 2016
This paper studies the market phenomenon of non-convergence between futures and spot prices in the grains market. We postulate that the positive basis observed at maturity stems from the futures holder's timing options to exercise the shipping certificate delivery item and subsequently liquidate the physical grain. In our proposed approach, we incorporate stochastic spot price and storage cost, and solve an optimal d…
Kevin Guo, Tim Leung
arXiv · arXiv q-fin · 2010
The mathematical problem of the static storage optimisation is formulated and solved by means of a variational analysis. The solution obtained in implicit form is shedding light on the most important features of the optimal exercise strategy. We show how the solution depends on different constraint types including carry cost and cycling constraint. We investigate the relation between intrinsic and stochastic solution…
Dmitry Lesnik
arXiv · arXiv q-fin · 2015
Hydro storage system optimization is becoming one of the most challenging tasks in Energy Finance. While currently the state-of-the-art of the commercial software in the industry implements mainly linear models, we would like to introduce risk aversion and a generic utility function. At the same time, we aim to develop and implement a computational efficient algorithm, which is not affected by the curse of dimensiona…
Simone Farinelli, Luisa Tibiletti
arXiv · arXiv q-fin · 2025
Battery Energy Storage Systems (BESS) are a cornerstone of the energy transition, as their ability to shift electricity across time enables both grid stability and the integration of renewable generation. This paper investigates the profitability of different market bidding strategies for BESS in the Central European wholesale power market, focusing on the day-ahead auction and intraday trading at EPEX Spot. We emplo…
Daniel Oeltz, Tobias Pfingsten
arXiv · arXiv q-fin · 2025
As renewable energy integration increases supply variability, battery energy storage systems (BESS) present a viable solution for balancing supply and demand. This paper proposes a novel approach for optimizing battery BESS participation in multiple electricity markets. We develop a joint bidding strategy that combines participation in the primary frequency reserve market with continuous trading in the intraday marke…
Yiming Zhang, Wolfgang Ridinger, David Wozabal
arXiv · arXiv q-fin · 2022
Forecasting electricity prices is a challenging task and an active area of research since the 1990s and the deregulation of the traditionally monopolistic and government-controlled power sectors. Although it aims at predicting both spot and forward prices, the vast majority of research is focused on short-term horizons which exhibit dynamics unlike in any other market. The reason is that power system stability calls …
Katarzyna Maciejowska, Bartosz Uniejewski, Rafał Weron
arXiv · arXiv q-fin · 2021
With the application of artificial intelligence in the financial field, quantitative trading is considered to be profitable. Based on this, this paper proposes an improved deep recurrent DRQN-ARBR model because the existing quantitative trading model ignores the impact of irrational investor behavior on the market, making the application effect poor in an environment where the stock market in China is non-efficiency.…
Peng Zhou, Jingling Tang
arXiv · arXiv q-fin · 2020
The large integration of variable energy resources is expected to shift a large part of the energy exchanges closer to real-time, where more accurate forecasts are available. In this context, the short-term electricity markets and in particular the intraday market are considered a suitable trading floor for these exchanges to occur. A key component for the successful renewable energy sources integration is the usage …
Ioannis Boukas, Damien Ernst, Thibaut Théate, Adrien Bolland, Alexandre Huynen
arXiv · arXiv q-fin · 2015
We derive a consistent differential representation for the dynamics of a self-financing portfolio for different hedging strategies. In the basis of the derivation there is the so called "retarded action principle", which represents the causality in the evolution of dependent stochastic variables. We demonstrate this principle on example of a vanilla and a storage option.
Dmitry Lesnik
arXiv · arXiv q-fin · 2011
The paper proposes a framework for modeling and analysis of the dynamics of supply, demand, and clearing prices in power system with real-time retail pricing and information asymmetry. Real-time retail pricing is characterized by passing on the real-time wholesale electricity prices to the end consumers, and is shown to create a closed-loop feedback system between the physical layer and the market layer of the power …
Mardavij Roozbehani, Munther A Dahleh, Sanjoy K Mitter