Dealing with Electricity Prices

The non-storability of electricity, absence of substitutes, inelastic supply and patterns in electricity consumption, make that power prices are subject to mean-reversion, seasonality and frequent price jumps. In his thesis Dealing with Electricity Prices, Christian Huurman develops new methods for price modelling and portfolio management. He defends his thesis on Thursday 22 March, 2007 at Erasmus University Rotterdam.

These stylized facts are not as extreme as those observed in any other commodity- or financial market. The reforms have triggered the demand for electricity derivatives, and have led to the introduction of market places where electricity can be traded on spot or forward. These markets enable market players to allocate the price risk that they are exposed to, by selecting portfolios consisting of spot- and derivative contracts in accordance with their risk appetite. Although academic research on valuation of derivatives and portfolio theory is well-established, little is known about its applicability in electricity markets due to the aforementioned unique characteristics. The scientific contribution of the research of Huurman is to extend the empirical methodology by conducting tests for untested hypotheses and propose alternative methodologies for (spot- and derivative) price modelling and portfolio management. He does so by using time-series analysis, extreme value theory, panel data models and portfolio theory. Data is obtained from the most active electricity exchanges in the world. Huurman hereby provides answers to yet unresolved issues on market efficiency, spot price dynamics, forward risk premia dynamics and structuring of the sourcing portfolio.

The Erasmus Research Institute of Management (ERIM) is the research school in the field of management of the Erasmus University Rotterdam. The founding participants of ERIM are RSM Erasmus University and the Erasmus School of Economics. ERIM was founded in 1999 and officially is accredited by the Royal Netherlands Academy of Arts and Science (KNAW). The objective of ERIM is to carry out first rate research in management and to offer an advanced doctoral programme in Research of Management.