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Mean-variance portfolio methods for energy policy risk management

Gustavo Marrero (), Luis Puch () and Francisco Ramos-Real ()

No 2013-41, Documentos de Trabajo del ICAE from Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico

Abstract: The risks associated with current and prospective costs of different energy technologies are crucial in assessing the efficiency of the energy mix. However, energy policy typically relies on the evolution of average costs, neglecting the covariances in the costs of the different energy technologies in the mix. Mean-Variance Portfolio Theory is implemented to evaluate jointly the average costs and the associated volatility of alternative energy combinations. In addition systematic and non-systematic risks associated with the energy technologies are computed based on a Capital Asset Pricing Model and considering time varying betas. It is shown that both electricity generation and fuel use imply risks that are idiosyncratic and with relevant implications for energy and environmental policy.

Keywords: Mean-variance; CAPM model; Energy risks; Energy mix; Energy policy. (search for similar items in EconPapers)
JEL-codes: G11 G12 Q43 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2013
Note: We would like to thank the Guest Editors, Shawkat Hammoudeh and Michael McAleer, the Editor, Hamid Beladi, and a referee for thoughtful comments and suggestions. We also thank Ricardo Guerrero, José Manuel Martínez-Duart and Alfonso Novales for their very helpful comments. Corresponding author: Luis A. Puch, Dto. Economía Cuantitativa, Universidad Complutense de Madrid, 28223 Somosaguas, Madrid, Spain. lpuch@ccee.ucm.es
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Journal Article: Mean-variance portfolio methods for energy policy risk management (2015) Downloads
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