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Energy price risk management

Author

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  • Rafal Weron

Abstract

The price of electricity is far more volatile than that of other commodities normally noted for extreme volatility. Demand and supply are balanced on a knife-edge because electric power cannot be economically stored, end user demand is largely weather dependent, and the reliability of the grid is paramount. The possibility of extreme price movements increases the risk of trading in electricity markets. However, a number of standard financial tools cannot be readily applied to pricing and hedging electricity derivatives. In this paper we present arguments why this is the case.

Suggested Citation

  • Rafal Weron, 2000. "Energy price risk management," HSC Research Reports HSC/00/02, Hugo Steinhaus Center, Wroclaw University of Science and Technology.
    • Handle: RePEc:wuu:wpaper:hsc0002
    as

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    File URL: http://www.im.pwr.wroc.pl/~hugo/RePEc/wuu/wpaper/HSC_00_02.pdf
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    References listed on IDEAS

    as
    1. Weron, Rafal & Przybyłowicz, Beata, 2000. "Hurst analysis of electricity price dynamics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 283(3), pages 462-468.
    2. Mantegna,Rosario N. & Stanley,H. Eugene, 2007. "Introduction to Econophysics," Cambridge Books, Cambridge University Press, number 9780521039871, September.
    3. Weron, Rafal, 2000. "Energy price risk management," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 285(1), pages 127-134.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Econophysics; Electricity price; Risk management; Mean-reversion;
    All these keywords.

    JEL classification:

    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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