Hedging Effectiveness on the MISO Exchange

Kevin Jones
Additional contact information
Kevin Jones: University of Houston-Downtown, USA

International Journal of Energy Economics and Policy, 2024, vol. 14, issue 1, 301-311

Abstract: The purpose of this paper is to evaluate the effectiveness of four commonly used hedging techniques on wholesale electricity prices within the Midcontinent Independent System Operator (MISO) energy market. This analysis provides and in-depth assessment of hedging performance on one of the largest power markets in North America. In a break from extant literature, hourly time series are used to create hedge portfolios for each of the regional hubs within the MISO footprint. Each risk management strategy is employed on 24 hourly time series for each of the eight regional hubs within the MISO footprint. This results in a total of 768 hedged portfolios across 192 hourly time series. While the naïve approach tends to outperform the others in terms of variance reduction, none of the strategies examined meet the generally accepted standard for a highly effective hedge. In several instances, the hedged portfolio contains a higher amount of risk than the unhedged position. This may be explained by the unique characteristics of wholesale electricity and hedging pressure, particularly during peak demand hours.

Keywords: Risk Management; Midwest Independent System Operator; Electricity Derivatives (search for similar items in EconPapers)
JEL-codes: G10 G20 G32 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.econjournals.com/index.php/ijeep/article/download/15218/7672 (application/pdf)
https://www.econjournals.com/index.php/ijeep/article/view/15218 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eco:journ2:2024-01-31

Access Statistics for this article

International Journal of Energy Economics and Policy is currently edited by Ilhan Ozturk

More articles in International Journal of Energy Economics and Policy from Econjournals
Bibliographic data for series maintained by Ilhan Ozturk ().