Predictive Trading Strategy for Physical Electricity Futures

Claudio Monteiro, L. Alfredo Fernandez-Jimenez and Ignacio J. Ramirez-Rosado
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Claudio Monteiro: Department of Electrical and Computer Engineering, Faculty of Engineering, University of Porto, 4200-465 Porto, Portugal
L. Alfredo Fernandez-Jimenez: Electrical Engineering Department, University of La Rioja, 26004 Logroño, Spain
Ignacio J. Ramirez-Rosado: Electrical Engineering Department, University of Zaragoza, 50018 Zaragoza, Spain

Energies, 2020, vol. 13, issue 14, 1-24

Abstract: This article presents an original predictive strategy, based on a new mid-term forecasting model, to be used for trading physical electricity futures. The forecasting model is used to predict the average spot price, which is used to estimate the Risk Premium corresponding to electricity futures trade operations with a physical delivery. A feed-forward neural network trained with the extreme learning machine algorithm is used as the initial implementation of the forecasting model. The predictive strategy and the forecasting model only need information available from electricity derivatives and spot markets at the time of negotiation. In this paper, the predictive trading strategy has been applied successfully to the Iberian Electricity Market (MIBEL). The forecasting model was applied for the six types of maturities available for monthly futures in the MIBEL, from 1 to 6 months ahead. The forecasting model was trained with MIBEL price data corresponding to 44 months and the performances of the forecasting model and of the predictive strategy were tested with data corresponding to a further 12 months. Furthermore, a simpler forecasting model and three benchmark trading strategies are also presented and evaluated using the Risk Premium in the testing period, for comparative purposes. The results prove the advantages of the predictive strategy, even using the simpler forecasting model, which showed improvements over the conventional benchmark trading strategy, evincing an interesting hedging potential for electricity futures trading.

Keywords: electricity markets; mid-term forecasting; energy trading; electricity price forecasting (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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