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Forward premia in electricity markets: A replication study

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  • Koten, Silvester Van

Abstract

Motivated by mixed empirical evidence for the risk premium theory of Bessembinder and Lemmon (2002), I perform a replication study by rerunning simulations. The risk premium theory links forward premia to the statistical properties of the anticipated distribution of spot power prices in an equilibrium approach. My simulations, closely following those run in the original paper, support the first three hypotheses, but not hypothesis 4. An increase in mean demand can thus result in a lower forward premium for some ranges of parameter values. The replication results do not explain the mixed empirical support for the theory.

Suggested Citation

  • Koten, Silvester Van, 2020. "Forward premia in electricity markets: A replication study," Energy Economics, Elsevier, vol. 89(C).
    • Handle: RePEc:eee:eneeco:v:89:y:2020:i:c:s0140988320301523
    DOI: 10.1016/j.eneco.2020.104812
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    References listed on IDEAS

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    Cited by:

    1. van Koten, Silvester, 2021. "The forward premium in electricity markets: An experimental study," Energy Economics, Elsevier, vol. 94(C).
    2. David Esteban Rodriguez & Alfredo Trespalacios & David Galeano, 2021. "Risk Transfer in an Electricity Market," Mathematics, MDPI, vol. 9(21), pages 1-12, October.
    3. Cao, K.H. & Qi, H.S. & Tsai, C.H. & Woo, C.K. & Zarnikau, J., 2021. "Energy trading efficiency in the US Midcontinent electricity markets," Applied Energy, Elsevier, vol. 302(C).

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    More about this item

    Keywords

    Forward premia; Electricity markets; Energy economics; Financial markets;
    All these keywords.

    JEL classification:

    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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