Analysis of the Iberian electricity forward market hedging efficiency Online publication date: Wed, 10-Sep-2014
by Álvaro Capitán Herráiz; Carlos Rodríguez Monroy
International Journal of Financial Engineering and Risk Management (IJFERM), Vol. 1, No. 1, 2013
Abstract: An assessment of the hedging performance in the Iberian forward electricity market is performed. Aggregated data from the Portuguese and Spanish clearing houses for energy derivatives are considered. The hedging performance is measured through a net position ratio obtained from the final open interest of a month derivatives contract divided by its accumulated cleared volume. The base load futures in the Iberian energy derivatives exchange show the lowest ratios due to good liquidity. The peak futures show bigger ratios as their reduced liquidity is produced by auctions fixed by Portuguese regulation. The base load swaps settled in the clearing house located in Spain show initially large values due to low registered volumes, as this clearing house is mainly used for short maturity (daily and weekly swaps). This ratio can be a powerful oversight tool for energy regulators when accessing to all the derivatives transactions as envisaged by European regulation.
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