Cutting edge: Electricity contract risk with portfolio effects

The incremental risk of including electricity contracts in a portfolio is computed by George Levy using a Monte Carlo regime-switching approach. The volume and price processes are modelled using empirical distributions and correlation is captured via a Gaussian copula. Different contractual reference prices and customer load management are also considered. It is found that increased customer load management reduces correlation effects

Cutting edge - Electricity contract risk with portfolio effects

This paper is concerned with the financial risk associated with commercial electricity contracts. Many firms participating in the electricity market, including the one at which the author is employed, have large portfolios of electricity contracts. The associated risk of these contracts needs to be quantifed. We discuss the risk of a single contract in isolation and then the marginal risk it contributes to an existing portfolio of electricity contracts.

Uncertainty in demand/supply volume is

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