The Hedging Performance of Electricity Futures on the Nordic Power Exchange Nord Pool
The Nordic Power Exchange (Nord Pool), the first multinational exchange for electricity trading, has existed since January 1996. Spot and futures contracts are traded on this exchange and its typical characteristics are very high volatility as well as non-normally distributed returns. In this paper I look at electricity futures and how they can be used for short term hedging in the spot market. I study the minimum variance hedge ratio and how it can be estimated in different ways. The traditional naive hedge and the OLS hedge are compared out-of-sample to more elaborate moving average and GARCH hedges. The empirical results indicate some gains from hedging with futures despite the lack of straight-forward arbitrage possibilities in the electricity market. Furthermore, I find that the relative performance of the different variance minimizing hedges depends on whether unconditional or conditional variances are studied.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||28 Sep 2000|
|Date of revision:|
|Publication status:||Published in Applied Economics, 2003, pages 1-11.|
|Contact details of provider:|| Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden|
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/en
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:hhs:lunewp:2000_015. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David Edgerton)
If references are entirely missing, you can add them using this form.