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Equilibrium Pricing and Optimal Hedging in Electricity Forward Markets
Open accessAbstract
Spot power prices are volatile and since electricity cannot be economically stored, familiar arbitrage‐based methods are not applicable for pricing power derivative contracts. This paper presents an equilibrium model implying that the forward power price is a downward biased predictor of the future spot price if expected power demand is low and demand risk is moderate. However, the equilibrium forward premium increases when either expected demand or demand variance is high, because of positive skewness in the spot power price distribution. Preliminary empirical evidence indicates that the premium in forward power prices is greatest during the summer months.
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Cited by
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Sheikhi, A., Rayati, M., Bahrami, S., & Mohammad Ranjbar, A. (2015) · IEEE Transactions on Smart Grid · doi:10.1109/tsg.2014.2377020 · Cited by 274
Limits to Arbitrage and Commodity Index Investment: Front-Running the Goldman Roll
Mou, Y. (2010) · doi:10.2139/ssrn.1716841 · Cited by 98
Tietjen, O., Lessmann, K., & Pahle, M. (2021) · Resource and Energy Economics · doi:10.1016/j.reseneeco.2020.101214 · Cited by 22
Metadata
- Authors
- Bessembinder, H., & Lemmon, M. L.
- Venue
- The Journal of Finance
- Publisher
- Wiley
- Published
- 2002-06
- Volume
- 57
- Issue
- 3
- Pages
- 1347-1382
- ISSN
- 0022-1082 (ISSN-L)
- 1540-6261
- OpenAlex
- W3121701901
- Cited by
- 723
- References
- 0
- FWCI
- 29.51
- Type
- journal article
- Language
- en
- Open access
- green
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- Bessembinder, H., & Lemmon, M. L. (2002). Equilibrium Pricing and Optimal Hedging in Electricity Forward Markets. The Journal of Finance. https://doi.org/10.1111/1540-6261.00463
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Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
