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Portfolio Optimization In Electricity Trading With Limited Liquidity

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Author Info

  • Christoph Weber

    ()
    (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen)

  • Oliver Woll

    ()
    (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen)

Abstract

In principle, portfolio optimization in electricity markets can make use of the standard mean-variance model going back to Markowitz. Yet a key restriction in most electricity markets is the limited liquidity. Therefore the standard model has to be adapted to cope with limited liquidity. An application of this model shows that the optimal hedging strategy for generation portfolios is strongly dependent on the size of the portfolio considered as well as on the variance-covariancematrix used and the liquidity function assumed.

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File URL: http://www.wiwi.uni-due.de/fileadmin/fileupload/BWL-ENERGIE/Arbeitspapiere/RePEc/pdf/wp0702_WeberWoll_MeanVarianceLimitedLiquidity_July2007.pdf
File Function: First version, 2007
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Bibliographic Info

Paper provided by University of Duisburg-Essen, Chair for Management Science and Energy Economics in its series EWL Working Papers with number 0702.

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Length: 20 pages
Date of creation: Jul 2007
Date of revision: Jul 2007
Handle: RePEc:dui:wpaper:0702

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Related research

Keywords: optimization; electricity; liquidity; electricity trading; mean-variance-model;

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