Hedging Electricity Price Volatility Applying Seasonal and Trend Decomposition

The Wholesale Electricity Market (MEM) has allowed participants to trade electricity at Local Marginal Price (LMP); therefore, developing hedging models to face high volatility electricity prices and avoid financial losses has become essential. This work proposes a methodology based on the Seasonal...

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Detalhes bibliográficos
Autores: Alfredo Ramírez-García, Eduardo Saucedo
Formato: artículo
Estado:Versión publicada
Fecha de publicación:2022
País:México
Recursos:Instituto Tecnológico y de Estudios Superiores de Monterrey
Repositorio:Redalyc-ITESM
OAI Identifier:oai:redalyc.org:41370350009
Acesso em linha:https://www.redalyc.org/articulo.oa?id=41370350009
https://www.redalyc.org/journal/413/41370350009/
https://www.redalyc.org/journal/413/41370350009/html/
https://www.redalyc.org/journal/413/41370350009/41370350009.epub
https://www.redalyc.org/journal/413/41370350009/movil
Access Level:acceso abierto
Palavra-chave:Economía y Finanzas
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spelling Hedging Electricity Price Volatility Applying Seasonal and Trend DecompositionAlfredo Ramírez-GarcíaEduardo SaucedoEconomía y FinanzasC15G10O13P18Q47The Wholesale Electricity Market (MEM) has allowed participants to trade electricity at Local Marginal Price (LMP); therefore, developing hedging models to face high volatility electricity prices and avoid financial losses has become essential. This work proposes a methodology based on the Seasonal and Trend Decomposition Model (STL) to the LMP returns series, which is fitted into NIG distribution by obtaining empirical NIG parameters from LMP returns using Maximum Likelihood Estimation (MLE) to generate a simulated NIG distributed series. Finally, the goodness-of-fit test is estimated to demonstrate that empirical data can be fitted into NIG Distribution. This work should be considered the first Electricity Hedging Valuation Methodology for the MEM. Results obtained show that electricity price returns can be fitted and simulated by NIG distribution even through economic crisis periods. The analysis period is from 29/01/2016 to 09/07/2021.Universidad Autónoma Metropolitana2022info:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdf0185-3937https://www.redalyc.org/articulo.oa?id=41370350009https://www.redalyc.org/journal/413/41370350009/https://www.redalyc.org/journal/413/41370350009/html/https://www.redalyc.org/journal/413/41370350009/41370350009.epubhttps://www.redalyc.org/journal/413/41370350009/movil10.7440/res64.2018.03Análisis Económico (México) Num.94 Vol.XXXVIIreponame:Redalyc-ITESMinstname:Instituto Tecnológico y de Estudios Superiores de Monterreyinstacron:ITESMenhttp://www.redalyc.org/revista.oa?id=413Análisis Económicoinfo:eu-repo/semantics/openAccessoai:redalyc.org:413703500092024-08-23T15:27:07Z
dc.title.none.fl_str_mv Hedging Electricity Price Volatility Applying Seasonal and Trend Decomposition
title Hedging Electricity Price Volatility Applying Seasonal and Trend Decomposition
spellingShingle Hedging Electricity Price Volatility Applying Seasonal and Trend Decomposition
Alfredo Ramírez-García
Economía y Finanzas
C15
G10
O13
P18
Q47
title_short Hedging Electricity Price Volatility Applying Seasonal and Trend Decomposition
title_full Hedging Electricity Price Volatility Applying Seasonal and Trend Decomposition
title_fullStr Hedging Electricity Price Volatility Applying Seasonal and Trend Decomposition
title_full_unstemmed Hedging Electricity Price Volatility Applying Seasonal and Trend Decomposition
title_sort Hedging Electricity Price Volatility Applying Seasonal and Trend Decomposition
dc.creator.none.fl_str_mv Alfredo Ramírez-García
Eduardo Saucedo
author Alfredo Ramírez-García
author_facet Alfredo Ramírez-García
Eduardo Saucedo
author_role author
author2 Eduardo Saucedo
author2_role author
dc.subject.none.fl_str_mv Economía y Finanzas
C15
G10
O13
P18
Q47
topic Economía y Finanzas
C15
G10
O13
P18
Q47
description The Wholesale Electricity Market (MEM) has allowed participants to trade electricity at Local Marginal Price (LMP); therefore, developing hedging models to face high volatility electricity prices and avoid financial losses has become essential. This work proposes a methodology based on the Seasonal and Trend Decomposition Model (STL) to the LMP returns series, which is fitted into NIG distribution by obtaining empirical NIG parameters from LMP returns using Maximum Likelihood Estimation (MLE) to generate a simulated NIG distributed series. Finally, the goodness-of-fit test is estimated to demonstrate that empirical data can be fitted into NIG Distribution. This work should be considered the first Electricity Hedging Valuation Methodology for the MEM. Results obtained show that electricity price returns can be fitted and simulated by NIG distribution even through economic crisis periods. The analysis period is from 29/01/2016 to 09/07/2021.
publishDate 2022
dc.date.none.fl_str_mv 2022
dc.type.none.fl_str_mv info:eu-repo/semantics/publishedVersion
info:eu-repo/semantics/article
format article
status_str publishedVersion
dc.identifier.none.fl_str_mv 0185-3937
https://www.redalyc.org/articulo.oa?id=41370350009
https://www.redalyc.org/journal/413/41370350009/
https://www.redalyc.org/journal/413/41370350009/html/
https://www.redalyc.org/journal/413/41370350009/41370350009.epub
https://www.redalyc.org/journal/413/41370350009/movil
10.7440/res64.2018.03
identifier_str_mv 0185-3937
10.7440/res64.2018.03
url https://www.redalyc.org/articulo.oa?id=41370350009
https://www.redalyc.org/journal/413/41370350009/
https://www.redalyc.org/journal/413/41370350009/html/
https://www.redalyc.org/journal/413/41370350009/41370350009.epub
https://www.redalyc.org/journal/413/41370350009/movil
dc.language.none.fl_str_mv en
language_invalid_str_mv en
dc.relation.none.fl_str_mv http://www.redalyc.org/revista.oa?id=413
dc.rights.none.fl_str_mv Análisis Económico
info:eu-repo/semantics/openAccess
rights_invalid_str_mv Análisis Económico
eu_rights_str_mv openAccess
dc.format.none.fl_str_mv application/pdf
dc.publisher.none.fl_str_mv Universidad Autónoma Metropolitana
publisher.none.fl_str_mv Universidad Autónoma Metropolitana
dc.source.none.fl_str_mv Análisis Económico (México) Num.94 Vol.XXXVII
reponame:Redalyc-ITESM
instname:Instituto Tecnológico y de Estudios Superiores de Monterrey
instacron:ITESM
instname_str Instituto Tecnológico y de Estudios Superiores de Monterrey
instacron_str ITESM
institution ITESM
reponame_str Redalyc-ITESM
collection Redalyc-ITESM
repository.name.fl_str_mv
repository.mail.fl_str_mv
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