Electricity price behavior models and numerical solutions with trees

In the new environment of liberalized electricity markets, electricity prices are essential for the activities of the electricity market participants, such as pricing, trading, making contracts, planning etc. It becomes a big challenge for researchers to model electricity prices behavior. This paper introduces two kinds of electricity price models (Black-Scholes model and time mean reversion model) and gives out numerical solutions for each model with lattice methods (binomial tree and trinomial tree). Some methods to estimate the parameters of each model are also proposed.