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Short-term Hedging for an Electricity Retailer

Debbie Dupuis, Geneviève Gauthier, and Fréderic Godin

Year: 2016
Volume: Volume 37
Number: Number 2
DOI: 10.5547/01956574.37.2.ddup
View Abstract

A dynamic global hedging procedure making use of futures contracts is developed for a retailer of the electricity market facing price, load and basis risk. Statistical models reproducing stylized facts are developed for the electricity load, the day-ahead spot price and futures prices in the Nord Pool market. These models serve as input to the hedging algorithm, which also accounts for transaction fees. Back-tests with market data from 2007 to 2012 show that the global hedging procedure provides considerable risk reduction when compared to hedging benchmarks found in the literature.

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