Electricity derivatives: an application to the futures Italian market

Laura Casula () and Giovanni Masala ()
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Laura Casula: Università degli Studi di Cagliari
Giovanni Masala: Università degli Studi di Cagliari

Empirical Economics, 2021, vol. 61, issue 2, No 4, 637-666

Abstract: Abstract Since the liberalization of electricity markets, electricity prices are more volatile and expansion in electricity derivatives trading occurs. Indeed, a well-known feature of electricity prices concerns its high volatility. For this reason, operators use power futures to hedge against unexpected risk deriving from adverse fluctuations of spot prices within the planned delivering period. Indeed, futures contracts permit to fix the price of electricity in advance for the use in the scheduled period. Our paper is devoted specifically to the Italian electricity market. In this respect, we examine empirical data from IDEX, the Energy Derivatives part of the Italian derivatives market IDEM, administered by “Borsa Italiana.” We finally survey the possible connections concerning futures and spot prices and, as a consequence, we deduce information about important indicators whereof the ex-post risk premium and the net convenience yield. For this purpose, we use several regression techniques to determine suitable explanatory variables inherent the Italian market for the ex-post risk premium and the net convenience yield.

Keywords: Electricity markets; Futures; Risk premium; Convenience yield; Linear regression; Partial least squares regression (search for similar items in EconPapers)
JEL-codes: C02 C52 G13 G14 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s00181-020-01915-2

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