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A utility based approach to energy hedging
Author(s)
Date Issued
2012-05
Date Available
2012-01-31T16:31:42Z
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.
Sponsorship
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.
Classification
G10
G12
G15
Subject – LCSH
Hedging (Finance)
Power resources
Risk management
Utility theory--Mathematical models
Web versions
Language
English
Status of Item
Peer reviewed
ISSN
0140-9883
This item is made available under a Creative Commons License
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utility hedging energy cotter hanly nov 2010.pdf
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390.57 KB
Format
Owning collection
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