Document Type

Article

Rights

This item is available under a Creative Commons License for non-commercial use only

Publication Details

Energy Economics, Volume 34, Issue 3, May 2012, Pages 817-827

Abstract

A key issue in the estimation of energy hedges is the hedgers’ attitude towards risk which is encapsulated in the form of the hedgers’ utility function. However, the literature typically uses only one form of utility function such as the quadratic when estimating hedges. This paper addresses this issue by estimating and applying energy market based risk aversion to commonly applied utility functions including log, exponential and quadratic, and we incorporate these in our hedging frameworks. We find significant differences in the optimal hedge strategies based on the utility function chosen.

DOI

10.1016/j.eneco.2011.07.009

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