The game of the electricity market : A game theoretical approach to investigate trading strategies in the Nordic electricity futures market

Abstract: With the background of the increasing volatility in the electricity market the recent years this thesis investigates the electricity futures market and the benefit for market participants to perform some trading strategy in order to increase profit or reduce risk. By modeling the market as a stochastic game the trader acts as a player in the game and with two simple models the player can predict the probability that the market moves up or down and take the appropriate position according to the prediction. This is simulated with Nasdaq closing prices for monthly electricity futures contracts for the years 2018-2022 and evaluated against a benchmark model.The result shows that a simple trading strategy can give a positive impact on the outcome and the stochastic game model leaves a good foundation for modeling with an almost endless number of machine learning algorithms.