THE APPLICATION OF DERIVATIVES BY ENERGY COMPANIES IN PRICE RISK MANAGEMENTReport as inadecuate




THE APPLICATION OF DERIVATIVES BY ENERGY COMPANIES IN PRICE RISK MANAGEMENT - Download this document for free, or read online. Document in PDF available to download.

journal of energy, Vol.56 No.4 August 2007. -

The process of deregulation on the energy markets has changed priorities and introduced new responsibilities into risk management. Awareness has increased among market participants regarding the importance and necessity for the risk management of electrical energy prices. Due to the nature of electrical energy, there are significant differences in price risk management in comparison to the classical methods used on financial markets. Energy derivatives have an important role in providing price signals, determining correct energy prices and facilitating effective price risk management.

The article presents the results of an investigation conducted on a sample of energy companies comprised of members of the European Federation of Energy Traders EFET. The investigation demonstrated that 75 % of the enterprises from the sample manage the risk from the variable prices of electrical energy by using some type of derivative. The most frequently used instruments are as follows: forwards 68,2 %, options 52,3 %, futures

50 % and swaps 43,2 %, known as plain vanilla derivatives. Furthermore, it has been demonstrated that the size of enterprises is an influential factor in deciding whether to use derivatives.

energy derivatives; energy market; hedging; price risk; risk management



Author: P. Sprčić - S. Krajcar -

Source: http://hrcak.srce.hr/



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