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A Utility Based Approach to Energy Hedging

John Cotter () and Jim Hanly ()

Papers from arXiv.org

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.

Date: 2011-03
New Economics Papers: this item is included in nep-ene, nep-rmg and nep-upt
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http://arxiv.org/pdf/1103.5973 Latest version (application/pdf)

Related works:
Journal Article: A utility based approach to energy hedging (2012) Downloads
Working Paper: A Utility Based Approach to Energy Hedging (2011) Downloads
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