Effective energy commodity risk management on Indonesia

Abstract

Energy commodities present significant interest for the world market and energy organizations worldwide. The comprehension of the asset returns and risk has played a main role in managing returns for the world market. The energy portfolios present challenges as they are highly volatile. The present study is concerned with evaluating and describing the joint return of energy-related commodities in the Indonesian market. Power, oil, coal, gas, and carbon are the main commodities being considered. The study presents the empirical evaluation of the returns from the multivariate hyperbolic distributions. Also, the study presents the method with which the risk measures can be evaluated for the commodity portfolios based on the generic assumptions of the hyperbole. The study's main findings are that the estimates of risk based on the normal distribution have statistically significant hyperbolic distributions. These are flexible and include accurate estimates of risk. The study indicates that the carbon allowances can be used to risk exposure for a typical energy portfolio for a power plant.