Purchase timing

Managing purchase timing risk is a constant issue for wholesale power buyers. Pavel Diko reviews products that reduce this risk, proposes a lookback option that can eliminate it completely and outlines a hedging strategy for the option writer

Electricity purchasers in the wholesale market – such as large industrials and distributors – cover a major part of their expected electricity consumption on the forward market to avoid the volatility and the limited liquidity of the spot. In so doing, they face the chance of their purchases being 'imperfectly' timed. As such, purchasers may look for ways to manage the risks that may stem from purchase timing issues (such as high purchase prices, increased transaction costs, etc). In this paper

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