Template-Type: ReDIF-Paper 1.0
Author-Name: Huisman, R.
Author-Name-Last: Huisman
Author-Name-First: Ronald
Author-Name: Mahieu, R.J.
Author-Name-Last: Mahieu
Author-Name-First: Ronald
Author-Person: pma286
Author-Name: Schlichter, F.
Author-Name-Last: Schlichter
Author-Name-First: Felix
Title: Hedging Exposure to Electricity Price Risk in a Value at Risk Framework
Abstract: This paper deals with the question how an electricity end-consumer or distribution company should structure its portfolio with energy forward contracts. This paper introduces a one period framework to determine optimal positions in peak and off-peak contracts in order to purchase future consumption volume. In this framework, the end-consumer or distribution company is assumed to minimize expected costs of purchasing respecting an ex-ante risk limit defined in terms of Value at Risk. Based on prices from the German EEX market, it is shown that a risk-loving agent is able to obtain lower expected costs than for a risk-averse agent.
Creation-Date: 2007-02-21
File-URL: https://repub.eur.nl/pub/8995/ERS-2007-013-F&A.pdf
File-Format: application/pdf
Series: RePEc:ems:eureri
Number: ERS-2007-013-F&A
Classification-JEL: G13, G3, M
Keywords: Electricity prices, Forward risk premium, Hedge ratios, Mean variance
Handle: RePEc:ems:eureri:8995