How big Is the risk premium in an electricity forward price? Evidence from the Pacific Northwest

Andrew DEBENEDICTIS; David MILLER; Jack MOORE; Arne OLSON; Chi Keung WOO

doi:10.1016/j.tej.2011.02.011

How big Is the risk premium in an electricity forward price? Evidence from the Pacific Northwest

Andrew DEBENEDICTIS, David MILLER, Jack MOORE, Arne OLSON, Chi Keung WOO

Department of Asian and Policy Studies (APS)

Research output: Contribution to journal › Articles › peer-review

4 Citations (Scopus)

Abstract

The numerous benefits of electricity forward trading come at a cost to consumers when a forward price contains a risk premium. An analysis based on the theory of cross hedging suggests that there is a risk premium of about 5 percent in the forward price for delivery at the Mid-Columbia hub of the Pacific Northwest. The existence of a relatively large risk premium suggests that forward contract buyers are more risk-averse than sellers. Copyright © 2011 Elsevier Inc. All rights reserved.

Original language	English
Pages (from-to)	72-76
Journal	Electricity Journal
Volume	24
Issue number	3
DOIs	https://doi.org/10.1016/j.tej.2011.02.011
Publication status	Published - 2011

Citation

DeBenedictis, A., Miller, D., Moore, J., Olson, A., & Woo, C. K. (2011). How big Is the risk premium in an electricity forward price? Evidence from the Pacific Northwest. The Electricity Journal, 24(3), 72-76. doi: 10.1016/j.tej.2011.02.011

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10.1016/j.tej.2011.02.011

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