A utility based approach to energy hedging

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Title: A utility based approach to energy hedging
Authors: Cotter, John
Hanly, Jim
Permanent link: http://hdl.handle.net/10197/3463
Date: May-2012
Abstract: A key issue in the estimation of energy hedges is the hedgers’ attitude towards risk which is encapsulated in the form of the hedgers’ utility function. However, the literature typically uses only one form of utility function such as the quadratic when estimating hedges. This paper addresses this issue by estimating and applying energy market based risk aversion to commonly applied utility functions including log, exponential and quadratic, and we incorporate these in our hedging frameworks. We find significant differences in the optimal hedge strategies based on the utility function chosen.
Funding Details: Science Foundation Ireland
Type of material: Journal Article
Publisher: Elsevier
Journal: Energy Economics
Volume: 34
Issue: 3
Start page: 817
End page: 827
Copyright (published version): 2011 Elsevier B.V.
Keywords: EnergyHedgingRisk managementRisk aversionForecastingG10G12G15
Subject LCSH: Hedging (Finance)
Power resources
Risk management
Utility theory--Mathematical models
DOI: 10.1016/j.eneco.2011.07.009
Other versions: http://dx.doi.org/10.1016/j.eneco.2011.07.009
Language: en
Status of Item: Peer reviewed
Appears in Collections:FMC² Research Collection
Business Research Collection

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