Electricity load pattern hedging with static forward strategies

Erkka Näsäkkälä (Systems Analysis Laboratory, Helsinki University of Technology, P.O. Box 1100, FIN‐02015 HUT, Finland)
Jussi Keppo (Department of Industrial and Operations Engineering, University of Michigan, 1205 Beal Avenue, Ann Arbor, MI, 48109‐2117, USA)

Managerial Finance

ISSN: 0307-4358

Publication date: 1 June 2005

Abstract

We consider the partial hedging of stochastic electricity load pattern with static forward strategies. We assume that the company under consideration maximizes the risk adjusted expected value of its electricity cash flows. First, we calculate an optimal hedge ratio and after that we use this hedge ratio to solve the optimal hedging time. Our results indicate, for instance that agents with high load volatility hedge later than agents that have low load volatility. Moreover, negative correlation between forwards and electricity load pattern postpones the hedging timing.

Keywords

Citation

Näsäkkälä, E. and Keppo, J. (2005), "Electricity load pattern hedging with static forward strategies", Managerial Finance, Vol. 31 No. 6, pp. 116-137. https://doi.org/10.1108/03074350510769721

Publisher

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Emerald Group Publishing Limited

Copyright © 2005, Emerald Group Publishing Limited

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