6533b838fe1ef96bd12a467b

RESEARCH PRODUCT

Pricing of electricity futures based on locational price differences : The case of Finland

Juhani RaatikainenValtteri MyllymäkiJuha-pekka Junttila

subject

ArbitrageEconomics and EconometricsFinancial economicsElectricity price020209 energyRisk premiumhinnoittelu02 engineering and technologySupply and demandsähkö0502 economics and business0202 electrical engineering electronic engineering information engineeringEconomicsElectricity market050207 economicssähkömarkkinatta512riskitta511business.industryEPAD05 social sciencesriskipreemiorisk premiumGeneral EnergyNordic electricity marketelectricity futuresElectricityArbitragebusinessFutures contractFinancial market participants

description

We find that the pricing of Finnish electricity market futures has been inefficient during the latest 10 years, when the trading volumes of Electricity Price Area Differentials (EPADs) have more than doubled. Even though the calculated futures premium on EPADs is related to some risk measures and the variables capturing the demand and supply conditions in the spot electricity markets, there has been a significant positive excess futures premium in the Finnish market, and financial market participants should have been able to utilize this also in economic terms. This finding is new and relevant for the participants of the Nordic electricity markets also in the future, because both the speculative and hedging-based trading is increasing in the Nordic markets. peerReviewed

yearjournalcountryeditionlanguage
2018-01-01Energy economics
10.1016/j.eneco.2018.02.018https://doi.org/10.1016/j.eneco.2018.02.018