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Portfolio Optimization In Electricity Trading With Limited Liquidity

Author

Listed:
  • 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.

Suggested Citation

  • Christoph Weber & Oliver Woll, 2007. "Portfolio Optimization In Electricity Trading With Limited Liquidity," EWL Working Papers 0702, University of Duisburg-Essen, Chair for Management Science and Energy Economics, revised Jul 2007.
    • Handle: RePEc:dui:wpaper:0702
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    References listed on IDEAS

    as
    1. Vehvilainen, Iivo & Keppo, Jussi, 2003. "Managing electricity market price risk," European Journal of Operational Research, Elsevier, vol. 145(1), pages 136-147, February.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Bastian Felix & Oliver Woll & Christoph Weber, 2013. "Gas storage valuation under limited market liquidity: an application in Germany," The European Journal of Finance, Taylor & Francis Journals, vol. 19(7-8), pages 715-733, September.
    2. Stefan Ankirchner & Thomas Kruse, 2013. "Optimal trade execution under price-sensitive risk preferences," Quantitative Finance, Taylor & Francis Journals, vol. 13(9), pages 1395-1409, September.
    3. Woll, Oliver, 2015. "Mean-risk hedging strategies in electricity markets with limited liquidity," ZEW Discussion Papers 15-056, ZEW - Leibniz Centre for European Economic Research.

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    More about this item

    Keywords

    optimization; electricity; liquidity; electricity trading; mean-variance-model;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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