Evaluation of static hedging strategies for hydropower producers in the Nordic market
In this paper we develop an optimization model to derive static hedge positions for hydropower producers with different risk characteristics. Previous research has primarily considered dynamic hedging; however, static hedging is the common choice among hydropower producers because of its simplicity. Our contribution is to evaluate such hedging out of sample. The hedging strategies we analyze include a natural hedge, which means no hedging, and output from an optimization model that we develop ourselves. The results show that, although optimized positions vary over time, hedging with use of forward contracts significantly reduces the risk in terms of value-at-risk, conditional value-at-risk and standard deviation of the revenue. Furthermore, this improvement results in only a minor reduction in mean revenue.
|Date of creation:||Dec 2010|
|Date of revision:|
|Publication status:||Forthcoming in Journal of Energy Markets 4.3(2010): pp. 1-28|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
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"Gas Storage Valuation: Price Modelling v. Optimization Methods,"
2008/20, Department of Business and Management Science, Norwegian School of Economics.
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