A seasonal copula mixture for hedging the clean spark spread with wind power futures

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review

Resumé

The recently introduced German wind power futures have brought the opportunity to address the problem
of volume risk in wind power generation directly. In this paper we study the hedging benefits of these
instruments in the context of gas-fired power plants by employing a strategy that allows trading in the
spot clean spark spread and wind power futures. To facilitate hedging decisions, we propose a time-varying
copula mixture for the joint behavior of the spot clean spark spread and the daily wind index. The model
describes the data surprisingly well, both in terms of the marginals and the dependence structure, while
being straightforward and easy to implement. Based on Monte Carlo simulations from the proposed model,
the results indicate that significant benefits can be achieved by using wind power futures to hedge the spot
clean spark spread. Moreover, a comparison study shows that accounting for asymmetry, tail dependence,
and time variation in the dependence structure is especially important in the context of risk management.
OriginalsprogEngelsk
TidsskriftEnergy Economics
Vol/bind78
Udgave nummerFebruary 2019
Sider (fra-til)64-80
Antal sider17
ISSN0140-9883
DOI
StatusUdgivet - 1 feb. 2019

Fingeraftryk

Electric sparks
Wind power
Risk management
Power generation
Power plants
Hedging
Copula
Gases
Dependence structure

Emneord

  • Clean spark spread; Wind power futures; Copula models; Time-varying dependence; Hedging.

Citer dette

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title = "A seasonal copula mixture for hedging the clean spark spread with wind power futures",
abstract = "The recently introduced German wind power futures have brought the opportunity to address the problem of volume risk in wind power generation directly. In this paper, we study the hedging benefits of these instruments in the context of peak gas-fired power plants, by employing a strategy that allows trading in the day-ahead clean spark spread and wind power futures. To facilitate hedging decisions, we propose a seasonal copula mixture for the joint behavior of the day-ahead clean spark spread and the daily wind index. The model describes the data surprisingly well, both in terms of the marginals and the dependence structure, while being straightforward and easy to implement. Based on Monte Carlo simulations from the proposed model, the results indicate that significant benefits can be achieved by using wind power futures. Moreover, a comparison study shows that accounting for asymmetry, tail dependence, and seasonality in the dependence structure is especially important in the context of risk management.",
keywords = "Clean spark spread; Wind power futures; Copula models; Time-varying dependence; Hedging., Clean spark spread, Wind power futures, Copula models, Time-varying dependence, Hedging",
author = "Christensen, {Troels S{\o}nderby} and Esben H{\o}g and Anca Pircalabu",
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journal = "Energy Economics",
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A seasonal copula mixture for hedging the clean spark spread with wind power futures. / Christensen, Troels Sønderby; Høg, Esben; Pircalabu, Anca.

I: Energy Economics, Bind 78, Nr. February 2019, 01.02.2019, s. 64-80.

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review

TY - JOUR

T1 - A seasonal copula mixture for hedging the clean spark spread with wind power futures

AU - Christensen, Troels Sønderby

AU - Høg, Esben

AU - Pircalabu, Anca

PY - 2019/2/1

Y1 - 2019/2/1

N2 - The recently introduced German wind power futures have brought the opportunity to address the problem of volume risk in wind power generation directly. In this paper, we study the hedging benefits of these instruments in the context of peak gas-fired power plants, by employing a strategy that allows trading in the day-ahead clean spark spread and wind power futures. To facilitate hedging decisions, we propose a seasonal copula mixture for the joint behavior of the day-ahead clean spark spread and the daily wind index. The model describes the data surprisingly well, both in terms of the marginals and the dependence structure, while being straightforward and easy to implement. Based on Monte Carlo simulations from the proposed model, the results indicate that significant benefits can be achieved by using wind power futures. Moreover, a comparison study shows that accounting for asymmetry, tail dependence, and seasonality in the dependence structure is especially important in the context of risk management.

AB - The recently introduced German wind power futures have brought the opportunity to address the problem of volume risk in wind power generation directly. In this paper, we study the hedging benefits of these instruments in the context of peak gas-fired power plants, by employing a strategy that allows trading in the day-ahead clean spark spread and wind power futures. To facilitate hedging decisions, we propose a seasonal copula mixture for the joint behavior of the day-ahead clean spark spread and the daily wind index. The model describes the data surprisingly well, both in terms of the marginals and the dependence structure, while being straightforward and easy to implement. Based on Monte Carlo simulations from the proposed model, the results indicate that significant benefits can be achieved by using wind power futures. Moreover, a comparison study shows that accounting for asymmetry, tail dependence, and seasonality in the dependence structure is especially important in the context of risk management.

KW - Clean spark spread; Wind power futures; Copula models; Time-varying dependence; Hedging.

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KW - Wind power futures

KW - Copula models

KW - Time-varying dependence

KW - Hedging

U2 - 10.1016/j.eneco.2018.11.002

DO - 10.1016/j.eneco.2018.11.002

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JF - Energy Economics

SN - 0140-9883

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