Abstract
Supply and demand are always supposed to be balanced due to certain limitations relating to electricity. Electricity prices fluctuate constantly and cannot be determined with complete certainty. The spot market price of electricity is a reflection of the continuous equilibrium among the production and supply of electricity. Due to uncontrolled exposure to the risk of the continual fluctuations of the spot market prices, market participants can incur financial losses. For this purpose, future and forwards have been introduced on the market. Owing to them, market risk can be hedged by employing the hedging method. Two types of such contracts exist: futures traded on electricity exchanges and forwards traded on over-thecounter markets. In this article, the descriptions, differences and application of these contracts are presented. A description of the hedging method and its application to futures is provided. At the end of the article, an application of a futures contract on the largest Middle European electricity exchange, EEX, is presented.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
