Abstract
Starting from the premise that hedging pressure is based on limited market efficiency I provide an analogy that electricity markets over years behave like intraday stock or FX markets during the liquidation of a block trade. In this endeavour I relate the returns of some liquidity exploitation strategies with the degree of liquidity metrics by utilising the characteristic initial endowments of market participants in electricity markets. In a second step I introduce a simple stochastic model that is able to capture a variety of stylized facts of asset returns (first order price impact, Samuelson Effect, negative prices) over the whole life span of the contract and that circumvents typical information modeling pitfalls for non-storable commodities. This argument is based on modeling 'market impact' as an additional asset with a known terminal value and is justified by an enlargement of filtration argument.
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