Covered Option Strategies in Nordic Electricity Markets
34 Pages Posted: 20 Jan 2016
Date Written: June 2, 2015
We test the performance of popular option strategies in the Nordic power derivative market using 12 years of data. We find that protective put strategies outperform long forward and covered call strategies on risk-adjusted basis, because the payoff function of the protective put seems a good fit to the market dynamics in both good and bad times. Detailed analysis reveals differences across moneyness levels and holding periods that can be further exploited. Different delta levels of the analyzed strategies allow for flexible hedging solutions.
Keywords: option strategy, forward contract, electricity market, Nord Pool
JEL Classification: G13, G32, L94
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