Spatial energy market risk analysis using the semivariance risk measure

Abstract

The paper concentrates on the analysis of semivariance (SV) as a market risk measure for market risk analysis of mean–semivariance (MSV) portfolios. The advantage of MSV over variance as a risk measure is that MSV provides a more logical measure of risk than the MV method. In addition, the relationship of the SV with the lower partial movements is discussed. A spatial risk model is proposed as a basis of risk assessment for short-term energy markets. Transaction costs and other practical constraints are also included. A case study is provided to show the successful application of the model.