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

Tegner, M, Ernstsen, RR, Skajaa, A & Poulsen, R 2017, 'Risk-minimisation in electricity markets: Fixed price, unknown consumption', Energy Economics, vol. 68, pp. 423-439. https://doi.org/10.1016/j.eneco.2017.10.014

APA

Tegner, M., Ernstsen, R. R., Skajaa, A., & Poulsen, R. (2017). Risk-minimisation in electricity markets: Fixed price, unknown consumption. Energy Economics, 68, 423-439. https://doi.org/10.1016/j.eneco.2017.10.014

Vancouver

Tegner M, Ernstsen RR, Skajaa A, Poulsen R. Risk-minimisation in electricity markets: Fixed price, unknown consumption. Energy Economics. 2017 Oct;68:423-439. https://doi.org/10.1016/j.eneco.2017.10.014

Author

Tegner, Martin ; Ernstsen, Rune Ramsdal ; Skajaa, Anders ; Poulsen, Rolf. / Risk-minimisation in electricity markets : Fixed price, unknown consumption. In: Energy Economics. 2017 ; Vol. 68. pp. 423-439.

Bibtex

@article{86c8e554eeaf4cc7a41ac8b4bba2cc35,
title = "Risk-minimisation in electricity markets: Fixed price, unknown consumption",
abstract = "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.",
keywords = "Quantity risk, Electricity markets, Hedging, Fixed price contracts",
author = "Martin Tegner and Ernstsen, {Rune Ramsdal} and Anders Skajaa and Rolf Poulsen",
year = "2017",
month = oct,
doi = "10.1016/j.eneco.2017.10.014",
language = "English",
volume = "68",
pages = "423--439",
journal = "Energy Economics",
issn = "0140-9883",
publisher = "Elsevier",

}

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