The hedging performance of electricity futures on the Nordic power exchange
(2003) In Applied Economics 35(1). p.1-11- Abstract
- The Nordic Power Exchange (Nord Pool), the first multinational exchange for electricity trading, has existed since January 1996. Spot and futures contracts are traded on this exchange and its typical characteristics are very high volatilities as well as non-normally distributed returns. This article looks at electricity futures and how they can be used for short-term hedging of positions taken in the spot market. It studies the minimum variance hedge ratio and how it can be estimated in different ways. The traditional naive hedge and the OLS hedge are compared out-of-sample to more elaborate moving average and GARCH hedges, and the empirical results indicate some gains from hedging with futures despite the lack of straight-forward... (More)
- The Nordic Power Exchange (Nord Pool), the first multinational exchange for electricity trading, has existed since January 1996. Spot and futures contracts are traded on this exchange and its typical characteristics are very high volatilities as well as non-normally distributed returns. This article looks at electricity futures and how they can be used for short-term hedging of positions taken in the spot market. It studies the minimum variance hedge ratio and how it can be estimated in different ways. The traditional naive hedge and the OLS hedge are compared out-of-sample to more elaborate moving average and GARCH hedges, and the empirical results indicate some gains from hedging with futures despite the lack of straight-forward arbitrage possibilities in the electricity market. Furthermore, we find a slightly better performance of the simple OLS hedge compared to the conditional hedges. (Less)
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/891342
- author
- Byström, Hans LU
- organization
- publishing date
- 2003
- type
- Contribution to journal
- publication status
- published
- subject
- in
- Applied Economics
- volume
- 35
- issue
- 1
- pages
- 1 - 11
- publisher
- Routledge
- external identifiers
-
- wos:000180517400001
- scopus:0037428277
- ISSN
- 1466-4283
- DOI
- 10.1080/00036840210138365
- language
- English
- LU publication?
- yes
- id
- a93331fa-c685-4d27-bfe2-263fb52788e7 (old id 891342)
- alternative location
- http://www.ingentaconnect.com/content/routledg/raef/2003/00000035/00000001/art00001
- date added to LUP
- 2016-04-01 12:10:19
- date last changed
- 2022-04-05 18:39:01
@article{a93331fa-c685-4d27-bfe2-263fb52788e7,
abstract = {{The Nordic Power Exchange (Nord Pool), the first multinational exchange for electricity trading, has existed since January 1996. Spot and futures contracts are traded on this exchange and its typical characteristics are very high volatilities as well as non-normally distributed returns. This article looks at electricity futures and how they can be used for short-term hedging of positions taken in the spot market. It studies the minimum variance hedge ratio and how it can be estimated in different ways. The traditional naive hedge and the OLS hedge are compared out-of-sample to more elaborate moving average and GARCH hedges, and the empirical results indicate some gains from hedging with futures despite the lack of straight-forward arbitrage possibilities in the electricity market. Furthermore, we find a slightly better performance of the simple OLS hedge compared to the conditional hedges.}},
author = {{Byström, Hans}},
issn = {{1466-4283}},
language = {{eng}},
number = {{1}},
pages = {{1--11}},
publisher = {{Routledge}},
series = {{Applied Economics}},
title = {{The hedging performance of electricity futures on the Nordic power exchange}},
url = {{http://dx.doi.org/10.1080/00036840210138365}},
doi = {{10.1080/00036840210138365}},
volume = {{35}},
year = {{2003}},
}