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A novel risk management framework for natural gas markets

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  • Panos K. Pouliasis
  • Ilias D. Visvikis
  • Nikos C. Papapostolou
  • Alexander A. Kryukov

Abstract

This paper examines dynamic hedges in the natural gas futures markets for different horizons and explores the gains from devising risk management strategies. Despite the substantial progress made in developing hedging models, forecast combinations have not been explored. We fill this gap by proposing a framework for combining hedge‐ratio predictions. Composite hedge ratios lead to significant reduction in portfolio risk, whether spot prices are partially predictable or not. We offer insights on hedging effectiveness across seasons, backwardation‐contango conditions and the asymmetric profiles of long‐short hedgers. We conclude that forecast combinations better reconcile realized performance with the hedging process, mitigating model instability.

Suggested Citation

  • Panos K. Pouliasis & Ilias D. Visvikis & Nikos C. Papapostolou & Alexander A. Kryukov, 2020. "A novel risk management framework for natural gas markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(3), pages 430-459, March.
    • Handle: RePEc:wly:jfutmk:v:40:y:2020:i:3:p:430-459
    DOI: 10.1002/fut.22067
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    References listed on IDEAS

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    2. Xu Gong & Mengjie Li & Keqin Guan & Chuanwang Sun, 2023. "Climate change attention and carbon futures return prediction," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(9), pages 1261-1288, September.

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