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Optimal hedging in European electricity forward markets

dc.contributor.authorLe Pen, Yannick
dc.contributor.authorSévi, Yannick
dc.date.accessioned2011-07-26T14:47:39Z
dc.date.available2011-07-26T14:47:39Z
dc.date.issued2007
dc.identifier.urihttps://basepub.dauphine.fr/handle/123456789/6808
dc.language.isoenen
dc.subjectElectricityen
dc.subjectmultivariate GARCHen
dc.subjectdynamic correlation modelsen
dc.subjectnon Gaussian densitiesen
dc.subjectoptimal hedgingen
dc.subjectcross-hedgingen
dc.subject.ddc332en
dc.subject.classificationjelG12en
dc.subject.classificationjelG32en
dc.subject.classificationjelG34en
dc.titleOptimal hedging in European electricity forward marketsen
dc.typeCommunication / Conférence
dc.description.abstractenThis article is concerned with modeling the dynamic and distributional properties of daily spot and forward electricity prices across European wholesale markets. Prices for forward contracts are extracted from a unique database from a major energy trader in Europe. Spot and forward returns are found to be highly non normally distributed. Alternative densities provide a better fit of data. In all cases, conditional heteroscedastic models are used with success to specify the data generating process of returns. We derive implications from the relation between spot and forward prices for the evaluation of hedging effectiveness of bilateral contracts. The relation is parametrized by the mean of multivariate GARCH models possibly allowing for dynamic conditional correlation. Because correlation between spot and forward returns is very low on each market, derived optimal hedge ratios are insignificant. We conclude to a great inefficiency for forward markets at least for short-term horizon. Hedging effectiveness is not improved, for our data, through the use of dynamic correlation models.en
dc.identifier.citationpages38en
dc.description.sponsorshipprivateouien
dc.subject.ddclabelEconomie financièreen
dc.relation.conftitle9th IAEE European Meetingen
dc.relation.confdate2007-06
dc.relation.confcityFlorenceen
dc.relation.confcountryItalieen


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