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Multiple zone power forwards: A value at risk framework

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  • Demers, Jean-Guy

Abstract

Over the 1990s, deregulated power markets in New-England provided zones with fluctuating spot prices. Such prices have a notoriously high volatility, owing to the difficulty of storing electrical energy and the delays needed to adjust generation levels. In this context, forward contracts have become increasingly popular and understanding their dynamic is a problem facing many market players. This paper proposes a parsimonious parametric model, based on the price series of all n-month forward contracts (n = 1,2,3...), encompassing multiple zones. The model is then used for value at risk forecasts, which are backtested and compared with the ones in use by the risk management unit of an important electricity producer. Extensions to include natural gas and power-relevant oil-based future markets are discussed.

Suggested Citation

  • Demers, Jean-Guy, 2009. "Multiple zone power forwards: A value at risk framework," Energy Economics, Elsevier, vol. 31(5), pages 714-726, September.
  • Handle: RePEc:eee:eneeco:v:31:y:2009:i:5:p:714-726
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    Cited by:

    1. Sueyoshi, Toshiyuki, 2010. "An agent-based approach with collaboration among agents: Estimation of wholesale electricity price on PJM and artificial data generated by a mean reverting model," Energy Economics, Elsevier, vol. 32(5), pages 1025-1033, September.

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