A utility based approach to energy hedging

John Cotter and Jim Hanly ()

Energy Economics, 2012, vol. 34, issue 3, 817-827

Abstract: A key issue in the estimation of energy hedges is the hedgers' attitude towards risk which is encapsulated in the form of the hedgers' utility function. However, the literature typically uses only one form of utility function such as the quadratic when estimating hedges. This paper addresses this issue by estimating and applying energy market based risk aversion to commonly applied utility functions including log, exponential and quadratic, and we incorporate these in our hedging frameworks. We find significant differences in the optimal hedge strategies based on the utility function chosen.

Keywords: Energy; Hedging; Risk management; Risk aversion; Forecasting (search for similar items in EconPapers)
JEL-codes: G10 G12 G15 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140988311001393
Full text for ScienceDirect subscribers only

Related works:
Working Paper: A Utility Based Approach to Energy Hedging (2011)
Working Paper: A Utility Based Approach to Energy Hedging (2011)
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:eee:eneeco:v:34:y:2012:i:3:p:817-827

DOI: 10.1016/j.eneco.2011.07.009

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().