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Risk Management and Hedging Approaches in Energy Markets

In: HANDBOOK OF ENERGY FINANCE Theories, Practices and Simulations


  • Jim Hanly


Energy-based assets are showing increased susceptibility to volatility arising out of geo-political, economic, climate and technological events. Given the economic importance of energy products, their market participants need to be able to access efficient strategies to effectively manage their exposures and reduce price risk. This chapter will outline the key futures-based hedging approaches that have been developed for managing energy price risk and evaluate their effectiveness. A key element of this analysis will be the breadth of assets considered. These include Crude and Refined Oil products, Natural Gas and wholesale Electricity markets. We find significant differences in the hedging effectiveness of the different energy markets. A key finding is that, Natural Gas and particularly Electricity futures are relatively ineffective as a risk management tool when compared with other energy assets.

Suggested Citation

  • Jim Hanly, 2020. "Risk Management and Hedging Approaches in Energy Markets," World Scientific Book Chapters, in: St├ęphane Goutte & Duc Khuong Nguyen (ed.), HANDBOOK OF ENERGY FINANCE Theories, Practices and Simulations, chapter 26, pages 651-667, World Scientific Publishing Co. Pte. Ltd..
  • Handle: RePEc:wsi:wschap:9789813278387_0026

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    More about this item


    Energy Finance; Financial and Economic Modeling; Volatility; Forecasting; Quantitative Finance; Energy Markets;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General


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