This paper is on the development of adequate mathematical model of electricity price via Fourier series. Fourier series is the representation of a function f(x) as an infinite series in sine and cosine terms. Our choice of Fourier series model for electricity price is as result of its volatility, fluctuation trends of hydro flow and poor market designs and we use actively-traded natural gas to hedge against electricity price in Nigeria. The natural gas prices are volatile but do not have a clear seasonal pattern, thus eliminating natural gas price volatility through hedging substantially reduce the electricity price, this development of logical mathematical frame work in the form of hedging tools assures an investor of his or her safety in the power sector.
| Published in | Applied and Computational Mathematics (Volume 3, Issue 5) |
| DOI | 10.11648/j.acm.20140305.20 |
| Page(s) | 256-261 |
| Creative Commons |
This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited. |
| Copyright |
Copyright © The Author(s), 2014. Published by Science Publishing Group |
Fourier Series, Electricity Market, Seasonality, Hedging Risk
| [1] | Anderson RW, Danthine J-P. 1981. Cross hedging. Journal of political Economy 89:11821196. |
| [2] | Borenstein S. 2002.The trouble with electricity markets: Understanding California’s restructuring disaster. Journal of Economic perspectives16: 191-211. |
| [3] | Black, F. and Scholes, M. (1973). The pricing of options and corporate liabilities. Journal of Political Economy, 3. |
| [4] | Bessemblinder H, Lemmon M. 2002. Equilibrium pricing and optimal hedging in forward markets. Journal of finance 32:654-663. |
| [5] | Benth FE, Koekebakker S. 2008 Stochastic modelling of financial electricity contracts. Economics: 1116-1157 |
| [6] | Brennan, Michael J. and Schwartz Eduardo S (1985). Evaluating Natural Resource Investments. Journal of Business, Vol. 58, No 2, 135-153. |
| [7] | Carr, P.,H. Geman, D.B. Madan and M. Yor (2002). The fine structure of asset returns: an empirical investigation, Journal of Business, 75: 305-332. |
| [8] | Cox, J.C., Ingersoll, J.E. and Ross S.A. (1985). A Theory of the term structure of Interest Rates. Econometrica 53: 385-407. |
| [9] | Dixit, Avinvash and Pindyck, Robert S. (1994). Investment under Uncertainty. Princeton University |
| [10] | Eydeland A,Wolynier K. 2003. Energy and power Risk management: New development in modelling, pricing and hedging John Wiley: New York. |
| [11] | Ederington LH, Salas JM. 2008. Minimum variance hedging when spot price changes are partially predictable. Journal of Banking and finance 32:654-663. |
| [12] | Huisaman R, Mahieu R, Schlichter F.2009. optimal peak/off-peak allocations. Energy Economics 31:169-174 |
| [13] | Karatzas, I. and Shreve, S. E. (1998). Methods of Mathematical Finance . Springer Verlag. |
| [14] | Keppo, Jussi and Lu, Hao (2003). Real Options and a Large Producer: The Case of Electricity markets. Energy Economics, |
| [15] | Li Y. Flynn PC. 2006. Electricity deregulation, spot price patterns and demand-side management. Energy 31: 908-922. |
| [16] | Malliaris, A.- G. and Brock, W. (1982). Stochastic Methods in Economics and Finance. North Holland. Research, Vol. 136, No. 3: 696-706. |
| [17] | McDonald, Robert and Siegel, Daniel (1986). The Value of Waiting to Invest. The Quarterly Journal of Economics, November, 708-727. |
| [18] | Mun, J. (2006). Real Options Analysis: Tools and Techniques for Valuing Strategic Investments and Decisions. Hoboken, NJ: John Wiley & Sons. |
| [19] | Protter, P. (2004). Stochastic Integration and Differential Equations, 2nd ed., Spring |
| [20] | Sarkar, S., (2000). On the Investment-Uncertainty Relationship in a Real Options M1del. Journa of Economics Dynamics & Control, 24: 219-225. |
| [21] | Sarkar, S. (2003).The effect of mean reversion on investment under uncertainty. Journal of Economic Dynamics and Control, 28()2: 377-396 |
| [22] | sioshansi FP, Pfaffenberge. W.2006. Electricity market reform: An international perspective. Elsevier: SanDiago |
| [23] | Xu Y. 2004. Electricity Reform in China, India and Russia. Edward Elgar: Cheltenhan |
| [24] | Su, X. (2006). A New Approach to the Irreversible Investment Problem, Technical report, Bonn Econ Paper No. 21/2006. |
| [25] | Woo, C.K., King, M., Tishler A., Chow, L.C.H., 2006c. Costs of electricity deregulation. Energy, 31, 747-768. |
| [26] | Woo C.K., L loyd D. Tishler A. 2003. Electricity market reform failures: UK, Norway. |
APA Style
Achudume Celestine, Chukwuma Raphael Nwozo. (2014). Electricity Market and Its Risk Management in Nigeria. Applied and Computational Mathematics, 3(5), 256-261. https://doi.org/10.11648/j.acm.20140305.20
ACS Style
Achudume Celestine; Chukwuma Raphael Nwozo. Electricity Market and Its Risk Management in Nigeria. Appl. Comput. Math. 2014, 3(5), 256-261. doi: 10.11648/j.acm.20140305.20
AMA Style
Achudume Celestine, Chukwuma Raphael Nwozo. Electricity Market and Its Risk Management in Nigeria. Appl Comput Math. 2014;3(5):256-261. doi: 10.11648/j.acm.20140305.20
Share This Article
Twitter
Linked In
Facebook
Copy
Download@article{10.11648/j.acm.20140305.20,
author = {Achudume Celestine and Chukwuma Raphael Nwozo},
title = {Electricity Market and Its Risk Management in Nigeria},
journal = {Applied and Computational Mathematics},
volume = {3},
number = {5},
pages = {256-261},
doi = {10.11648/j.acm.20140305.20},
url = {https://doi.org/10.11648/j.acm.20140305.20},
eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.acm.20140305.20},
abstract = {This paper is on the development of adequate mathematical model of electricity price via Fourier series. Fourier series is the representation of a function f(x) as an infinite series in sine and cosine terms. Our choice of Fourier series model for electricity price is as result of its volatility, fluctuation trends of hydro flow and poor market designs and we use actively-traded natural gas to hedge against electricity price in Nigeria. The natural gas prices are volatile but do not have a clear seasonal pattern, thus eliminating natural gas price volatility through hedging substantially reduce the electricity price, this development of logical mathematical frame work in the form of hedging tools assures an investor of his or her safety in the power sector.},
year = {2014}
}
TY - JOUR T1 - Electricity Market and Its Risk Management in Nigeria AU - Achudume Celestine AU - Chukwuma Raphael Nwozo Y1 - 2014/10/30 PY - 2014 N1 - https://doi.org/10.11648/j.acm.20140305.20 DO - 10.11648/j.acm.20140305.20 T2 - Applied and Computational Mathematics JF - Applied and Computational Mathematics JO - Applied and Computational Mathematics SP - 256 EP - 261 PB - Science Publishing Group SN - 2328-5613 UR - https://doi.org/10.11648/j.acm.20140305.20 AB - This paper is on the development of adequate mathematical model of electricity price via Fourier series. Fourier series is the representation of a function f(x) as an infinite series in sine and cosine terms. Our choice of Fourier series model for electricity price is as result of its volatility, fluctuation trends of hydro flow and poor market designs and we use actively-traded natural gas to hedge against electricity price in Nigeria. The natural gas prices are volatile but do not have a clear seasonal pattern, thus eliminating natural gas price volatility through hedging substantially reduce the electricity price, this development of logical mathematical frame work in the form of hedging tools assures an investor of his or her safety in the power sector. VL - 3 IS - 5 ER -
Email: