Abstract
We hedge options on electricity spot prices by cross hedging, i.e., by using another financial asset. We calculate hedging strategies by quadratic minimization and local risk minimization. In our model of energy markets, we have done a deep study of no arbitrage and of the existence of martingale measures with square integrable density. Then we have established tools for efficient hedges. Nevertheless, we have clearly proved possible limitations of the expiry of options with quadratic criteria.
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