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Managing Flexible Load Contracts: Two simple strategies

Author

Listed:
  • Bjerksund, Petter

    () (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

  • Myksvoll, Bjarte

    () (Viz Risk Management)

  • Stensland, Gunnar

    () (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

Abstract

A flexible load contract is a type of swing option where the holder has the right to receive a given quantity of electricity within a specified period, at a fixed maximum effect (delivery rate). The contract is flexible, in the sense that delivery (the take hours) is called one day in advance. We investigate two simple strategies for managing flexible load contracts, where both use price information from the forward market. For 10 contracts traded in the period 1997-2001, we calculate the performance of the two strategies and compare with the reported performance of one complex dynamic programming approach as well as the actual results obtained by three anonymous market participants. The comparison indicates that our simple computer-efficient strategies perform better on average and produces more stable results.

Suggested Citation

  • Bjerksund, Petter & Myksvoll, Bjarte & Stensland, Gunnar, 2006. "Managing Flexible Load Contracts: Two simple strategies," Discussion Papers 2006/21, Norwegian School of Economics, Department of Business and Management Science.
  • Handle: RePEc:hhs:nhhfms:2006_021
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    File URL: http://hdl.handle.net/11250/164110
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    Keywords

    Flexible Load Contracts; computer-efficient strategies; dynamic programming;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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