After the liberalization and deregulation of electricity markets, the unpredictability of price trends importantly impacts on prots and risk exposures, both for those who use and produce this particular commodity. As such, it is nearly impossible to predict electricity spot movements with a high accuracy. However, managing and controlling these uctuations can be done by using nancial instruments. This thesis tests how eective it would be to pursue such a hedge by using monthly and quarterly futures contracts in the Nordic and German power markets. The portfolios are built using static and dynamic hedge ratios, whereas their hedging performance is measured by variance and Value at Risk reductions. Overall, it is found that these strategies are poorly eective in covering from price risk, particularly in the EEX market. Furthermore, this eectiveness widely changes between dierent periods and between the two markets, indicating that a unique strategy oering an eective riskmitigation over time and geographical areas is not existent.
|Educations||MSc in Finance and Strategic Management, (Graduate Programme) Final Thesis|
|Number of pages||146|