Pricing swing options in the electricity market using stochastic optimal control approach

The electricity prices are known to be mean-reverting, highly volatile subject to frequent spikes. We set a regime-switching process for the price dynamic that contains three regimes. This kind of process is approximated by a heptalnomial tree. In this paper, we develop LSM and forest of tree method for the pricing of swing options when the underlying electricity market is modeled by a regime-switching process.