Hedging quantity risks of power plants with standard power options

摘要

Power plants in the competitive market will face volatile generation cost and volatile spot price, and risk management will become crucial. We address quantity risk faced by power plants with quadratic cost, which produce electricity with variable cost and sell it at spot price. By innovatively modifying existing models that provide optimal quantity hedging schemes, we find out the optimal zero-cost hedging portfolio for both CARA and mean-variance utilitarian. Next, we demonstrate how to implement the modified hedging strategies. Finally, by analyzing the sensitivity of the quadratic coefficient, decision making differentiation between CARA and mean-variance utilitarian is revealed.