Modeling electricity price and quantity uncertainty: An application for hedging with forward contracts

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dc.contributor.authorTrespalacios, Alfredo
dc.contributor.authorCortés, Lina
dc.contributor.authorPerote, Javier
dc.contributor.eafitauthorlcortesd@eafit.edu.co
dc.coverage.spatialMedellín de: Lat: 06 15 00 N degrees minutes Lat: 6.2500 decimal degrees Long: 075 36 00 W degrees minutes Long: -75.6000 decimal degreeseng
dc.date.accessioned2020-06-09T14:53:03Z
dc.date.available2020-06-09T14:53:03Z
dc.date.issued2020-06-08
dc.description.abstractEnergy purchases/sales in liberalized markets are subject to price and quantity uncertainty, which should be jointly modeled by relaxing the unreliable normality assumption for capturing risk. In this paper, we consider the spot price and energy generation to follow a bivariate semi-nonparametric distribution defined in terms of the Gram-Charlier expansion. This distribution allows to jointly model not only mean, variance, and correlation, but also skewness, kurtosis, and higher-order moments. Based on this model, we propose a static hedging strategy for electricity generators that participate in a competitive market where hedging is carried out through forward contracts that include a risk premium in their valuation. For this purpose, we use Monte Carlo simulation and consider information from the Colombian electricity market as the case study. The results show that the volume of energy to be sold under long-term contracts depends on each electricity generator and the risk assessment made by the market in the Forward Risk Premium. The conditions of skewness, kurtosis, and correlation, as well as the type of risk indicator to be employed, affect the hedging strategy that each electricity generator should implement.eng
dc.identifier.jelC14
dc.identifier.jelC22
dc.identifier.jelC53
dc.identifier.jelL94
dc.identifier.jelL98
dc.identifier.jelQ2
dc.identifier.urihttp://hdl.handle.net/10784/16325
dc.language.isospaeng
dc.publisherUniversidad EAFITspa
dc.publisher.departmentEscuela de Economía y Finanzasspa
dc.rights.accessrightsinfo:eu-repo/semantics/openAccesseng
dc.rights.localAcceso abiertospa
dc.subject.keywordSemi-nonparametric approachspa
dc.subject.keywordmultivariate distributionspa
dc.subject.keywordelectricity marketspa
dc.subject.keywordhedgingspa
dc.subject.keywordforward contracts.spa
dc.titleModeling electricity price and quantity uncertainty: An application for hedging with forward contractseng
dc.typeworkingPapereng
dc.typeinfo:eu-repo/semantics/workingPapereng
dc.type.hasVersiondrafteng
dc.type.localDocumento de trabajo de investigaciónspa

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