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Title: Portfolio optimisation of power futures market: evidence from France and Germany

Authors: Emmanuel Senyo Fianu

Addresses: Sustainability Economics Group, Leuphana University Luneburg, Scharhorststr 1, 21335, Luneburg, Germany

Abstract: Understanding the nature of power futures is particularly crucial, for non-storable commodities such as wholesale electricity since it has been deregulated. This paper examines different types of optimisation techniques and provides a temporal analysis of energy future prices. In particular, it highlights how one of the well-known elements of modern finance theory could improve the accuracy of evaluating the risk exposure inherent in power futures market via a modified version of the mean-variance portfolio (MVP) theory. The optimisation techniques employed account for the initial capital requirement of the energy futures and estimate the optimal weights needed to mitigate the downside risk inherent in the energy futures market. One major finding of this paper shows that, a portfolio of energy prices with different maturities could provide market players with a less risky investment in the energy market. In addition, the feasibility of the methodologies utilised have been presented.

Keywords: portfolio theory; portfolio optimisation; electricity futures; energy markets; investment risk management.

DOI: 10.1504/IJPP.2018.090690

International Journal of Public Policy, 2018 Vol.14 No.1/2, pp.120 - 144

Received: 01 Jan 2016
Accepted: 10 Aug 2016

Published online: 21 Mar 2018 *

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