Risk-minimisation in electricity markets: Fixed price, unknown consumption
Research output: Contribution to journal › Journal article › Research › peer-review
Standard
Risk-minimisation in electricity markets : Fixed price, unknown consumption. / Tegner, Martin; Ernstsen, Rune Ramsdal; Skajaa, Anders; Poulsen, Rolf.
In: Energy Economics, Vol. 68, 10.2017, p. 423-439.Research output: Contribution to journal › Journal article › Research › peer-review
Harvard
APA
Vancouver
Author
Bibtex
}
RIS
TY - JOUR
T1 - Risk-minimisation in electricity markets
T2 - Fixed price, unknown consumption
AU - Tegner, Martin
AU - Ernstsen, Rune Ramsdal
AU - Skajaa, Anders
AU - Poulsen, Rolf
PY - 2017/10
Y1 - 2017/10
N2 - This paper analyses risk management of fixed price, unspecified consumption contracts in energy markets.We model the joint dynamics of the spot-price and the consumption of electricity, study expected lossminimisation for different loss measures, and derive optimal static hedge strategies based on forward contracts.The strategies are implemented empirically and compared to a benchmark strategy widely used bythe industry. On 2012–2014 Nordic market data, the suggested hedges significantly outperform the benchmark:The realised cumulative profit-and-losses are greater for almost every single one-month period andthe hourly realised payoffs result in an approximate 65% out-performance probability. Hedges based onasymmetric loss measures yield markedly higher reward-to-risk ratios than the benchmark, which can beexploited to release a premium from the contract in the financially significant order of 1.5% of the fixed price.
AB - This paper analyses risk management of fixed price, unspecified consumption contracts in energy markets.We model the joint dynamics of the spot-price and the consumption of electricity, study expected lossminimisation for different loss measures, and derive optimal static hedge strategies based on forward contracts.The strategies are implemented empirically and compared to a benchmark strategy widely used bythe industry. On 2012–2014 Nordic market data, the suggested hedges significantly outperform the benchmark:The realised cumulative profit-and-losses are greater for almost every single one-month period andthe hourly realised payoffs result in an approximate 65% out-performance probability. Hedges based onasymmetric loss measures yield markedly higher reward-to-risk ratios than the benchmark, which can beexploited to release a premium from the contract in the financially significant order of 1.5% of the fixed price.
KW - Quantity risk
KW - Electricity markets
KW - Hedging
KW - Fixed price contracts
U2 - 10.1016/j.eneco.2017.10.014
DO - 10.1016/j.eneco.2017.10.014
M3 - Journal article
VL - 68
SP - 423
EP - 439
JO - Energy Economics
JF - Energy Economics
SN - 0140-9883
ER -
ID: 187663780