PORTFOLIO OPTIMIZATION IN ELECTRICITY TRADING WITH LIMITED LIQUIDITY

Christoph Weber and Oliver Woll

No 702, EWL Working Papers from University of Duisburg-Essen, Chair for Management Science and Energy Economics

Abstract: In principle, portfolio optimization in electricity markets can make use of the standard mean-variance model going back to Markowitz. Yet a key restriction in most electricity markets is the limited liquidity. Therefore the standard model has to be adapted to cope with limited liquidity. An application of this model shows that the optimal hedging strategy for generation portfolios is strongly dependent on the size of the portfolio considered as well as on the variance-covariancematrix used and the liquidity function assumed.

Keywords: optimization; electricity, liquidity; electricity trading; mean-variance-model (search for similar items in EconPapers)
JEL-codes: C61 G11 Q40 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2007-07, Revised 2007-07
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:dui:wpaper:0702

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