Value-at-Risk Based Portfolio Management in Electric Power Sector

摘要

In the deregulated electricity market, highly volatile electricity price leads to the large skew and kurtosis in the price return distribution. Risk management is essential in the portfolio management for market participants. In this paper, we proposed a portfolio optimization model which is capable of managing non-normality in the electricity portfolio return distribution. The optimal portfolio is found by maximizing a performance index resembling to the Sharpe ratio, whereas the risk is defined using Value-at-Risk technique instead of standard deviation. In this model, we can automatically determine the risk-free asset allocation without using utility function, and, as a result, determine how much Contract for Difference (CfD) should be included in the portfolio. After some explanations of the market structure and portfolio elements in Nordic power market, we give an example of a hypothetic electricity company in Oslo, managing its portfolio following the proposed strategy.