On the risk premium in Nordic electricity futures prices

Julio J. Lucia and Hipolit Torro

International Review of Economics & Finance, 2011, vol. 20, issue 4, 750-763

Abstract: This paper examines empirically the relationship between electricity spot and futures prices, by analysing a decade of data for a set of short term-to-maturity futures contracts traded in the Nordic Power Exchange. It is found that, on average, there are significant positive risk premiums in short-term electricity futures prices. The significance and size of the premiums, however, varies seasonally over the year; whereas it is greatest during winter, it is zero in summer. It is also found that time-varying risk premiums are significantly related to unexpectedly low reservoir levels. Furthermore, before the unprecedented supply-shock that hit the market around the end of year 2002, the risk premiums were related to the variance and the skewness of future spot prices.

Keywords: Energy; derivatives; Futures; premium; Seasonal; risk; premia (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (33)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:20:y:2011:i:4:p:750-763

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