Intra-Day Risk Premia in European Electricity Forward Markets

The Journal of Energy Markets, Forthcoming

Posted: 14 Jul 2009 Last revised: 8 Oct 2009

See all articles by Ehud I. Ronn

Ehud I. Ronn

University of Texas at Austin - Department of Finance

Jens Wimschulte

Independent

Date Written: July 11, 2009

Abstract

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

Ronn, Ehud I. and Wimschulte, Jens, Intra-Day Risk Premia in European Electricity Forward Markets (July 11, 2009). The Journal of Energy Markets, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1434028

Ehud I. Ronn (Contact Author)

University of Texas at Austin - Department of Finance ( email )

Graduate School of Business
Austin, TX 78712
United States
512-471-5853 (Phone)
512-471-5073 (Fax)

Jens Wimschulte

Independent ( email )

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