For options on power (e.g. https://www.ice.com/products/6590519/Option-on-ERCOT-North-345KV-Real-Time-Peak-Fixed-Price-Future ), how would you replicate this?
Vanilla options in equities can be replicated by delta hedging with the implied volatility.
But for power options, the underlying (future) experiences infinite volatility before outturn and this seems really hard to replicate since the future is not as nicely behaved as an equity option (stock) underlying.
