Expectations and Forward Risk Premium in the Spanish Power Market
To analyse the forward risk premium in the Spanish electricity market, we adopt not only an ex post approach, but also an ex ante. We find that the sign of the ex post forward premium depends on the unexpected variation in demand and on the unexpected variation in the hydro-energy capacity, and that the ex ante forward premium varies with the expected demand in tight market conditions, showing that the participation of forward dealing agents in the Spanish market responds to risk considerations. Moreover, we find support for the implications derived from the Bessembinder & Lemmon (2002) equilibrium model.
|Date of creation:||Jan 2009|
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- Fred Espen Benth & Alvaro Cartea & Ruediger Kiesel, 2006.
"Pricing Forward Contracts in Power Markets by the Certainty Equivalence Principle: Explaining the Sign of the Market Risk Premium,"
Birkbeck Working Papers in Economics and Finance
0611, Birkbeck, Department of Economics, Mathematics & Statistics.
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