6533b872fe1ef96bd12d377b
RESEARCH PRODUCT
On the risk premium in Nordic electricity futures prices
Hipòlit TorróJulio J. Luciasubject
Economics and EconometricsSpot contractSkewnessbusiness.industryFinancial economicsRisk premiumPower exchangeEconomicsVariance (land use)ElectricitybusinessFutures contractFinancedescription
Abstract This paper examines empirically the relationship between electricity spot and futures prices, by analysing a decade of data for a set of short term-to-maturity futures contracts traded in the Nordic Power Exchange. It is found that, on average, there are significant positive risk premiums in short-term electricity futures prices. The significance and size of the premiums, however, varies seasonally over the year; whereas it is greatest during winter, it is zero in summer. It is also found that time-varying risk premiums are significantly related to unexpectedly low reservoir levels. Furthermore, before the unprecedented supply-shock that hit the market around the end of year 2002, the risk premiums were related to the variance and the skewness of future spot prices.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2011-10-01 | International Review of Economics & Finance |