European electricity markets have been subject to a broad deregulation process in the last few decades. We analyse hedging policies implemented through different hedge ratios estimation. More specifically we compare naïve, ordinary least squares, and GARCH conditional variance and correlations models to test if GARCH models lead to higher variance reduction in a context of high time varying volatility as the case of electricity markets. Our results show that the choice of the hedge ratio estimation model is central on determining the effectiveness of futures hedging to reduce the portfolio volatility.

Hedging with Futures: An Application of GARCH to European Electricity Markets

ZANOTTI, GIOVANNA;GABBI, GIAMPAOLO;GERANIO, MANUELA
2009

Abstract

European electricity markets have been subject to a broad deregulation process in the last few decades. We analyse hedging policies implemented through different hedge ratios estimation. More specifically we compare naïve, ordinary least squares, and GARCH conditional variance and correlations models to test if GARCH models lead to higher variance reduction in a context of high time varying volatility as the case of electricity markets. Our results show that the choice of the hedge ratio estimation model is central on determining the effectiveness of futures hedging to reduce the portfolio volatility.
2009
Hedging with futures in a context of high time varying volatility: an application of GARCH correlation models to european electricity markets
Zanotti, Giovanna; Gabbi, Giampaolo; Geranio, Manuela
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/3727456
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