Intra-Day Risk Premia in European Electricity Forward Markets
The Journal of Energy Markets, Forthcoming
Posted: 14 Jul 2009 Last revised: 8 Oct 2009
Date Written: July 11, 2009
Using a detailed data set of electricity forward prices in Central Europe, we compute the intra-day risk premium and market price of risk for the two electricity exchanges European Energy Exchange (EEX) and Energy Exchange Austria (EXAA). Given the significant volatility and jump risk of electricity prices, these closely linked markets offer an opportunity to study whether market participants are willing to pay a premium to secure day-ahead delivery prices earlier in a trading day. Generally, we find such a positive risk premium, leading to a statistically significant negative market price of risk and the implication that forward prices are upward-biased predictors of expected electricity spot prices.
Keywords: Electricity Forwards, Intra-Day Prices, Risk Premium, Market Price of Risk
JEL Classification: G13, Q40
Suggested Citation: Suggested Citation