Forward risk premia in long-term transmission rights: the case of electricity price area differentials (EPAD) in the Nordic electricity market

February 15, 2018 | Journal Article

front cover of JA201813 Authors: Petr Spodniak , Mikael Collan
Utilities Policy , Vol. 50, February 2018, pp. 194-206

Hedging behaviour among players in derivatives markets have long been explained by forward risk premia. We provide new empirical evidence from the Nordic electricity market and explore the forward risk premia dynamics on power derivative contracts called electricity price area differentials (EPAD). This contract is critical for the market, but its efficiency has been questioned. The study investigates the significance, direction, and magnitude of forward risk premia in individual bidding areas and contract maturities during the period 2001–2013. We test the hypothesis of a negative relationship between forward risk premia and time-to-maturity, for which we find only partial support.

  • Publication Details

    Journal Article

    ESRI Series Number: 201813
    Research Area: Energy and Environment
    Date of Publication: February 15, 2018
    Published Online: January 19, 2018
    Publisher: Elsevier
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