Haskayne School of Business Research & Publications

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Browsing Haskayne School of Business Research & Publications by Department "Risk Management and Insurance"

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    Optimization of Electricity Retailer’s Contract Portfolio Subject to Risk Preferences
    (Institute of Electrical and Electronics Engineers (IEEE), 2010) Kettunen, Janne; Salo, Ahti; Bunn, Derek W
    When an electricity retailer faces volume risk in meeting load and spot price risk in purchasing from the wholesale market, conventional risk management optimization methods can be quite inefficient. For the management of an electricity contract portfolio in this context, we develop a multistage stochastic optimization approach which accounts for the uncertainties of both electricity prices and loads, and which permits the specification of conditional-value-at-risk requirements to optimize hedging across intermediate stages in the planning horizons. Our experimental results, based on real data from Nordpool, suggest that the modeling of price and load correlations is particularly important. The sensitivity analysis is extended to characterize the behavior of retailers with different risk attitudes. Thus, we observe that a risk neutral retailer is more susceptible to price-related than load-related uncertainties in terms of the expected cost of satisfying the load, and that a risk averse retailer is especially sensitive to the drivers of the forward risk premium.
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    Policy interactions, risk and price formation in carbon markets
    (Elsevier, 2009) Kettunen, Janne; Blyth, William; Bunn, Derek; Wilson, Tom
    Carbon pricing is an important mechanism for signalling to individuals and companies societal concerns about climate change, and for providing an incentive to invest in carbon abatement. Price formation in carbon markets involves a complex interplay between policy targets, dynamic technology costs, and market rules. Carbon pricing may under-deliver investment due to R&D externalities and so additional policies may be needed which themselves affect carbon price formation. Also, future abatement costs depend on the extent of technology deployment due to learning-by-doing, leading to some circularity in the analysis of investment, learning, costs and prices. This paper introduces an analytical framework based on marginal abatement cost (MAC) curves with the aim of providing an intuitive (rather than complete) understanding of the key dynamics and risk factors in carbon markets. The framework extends the usual static MAC representation of the market to incorporate policy interactions and some technology cost dynamics. The analysis indicates that supporting large-scale deployment of mature abatement technologies suppresses the marginal cost of abatement, sometimes to zero, whilst increasing total abatement costs. However, support for early stage R&D may reduce both total abatement cost and carbon price risk. It is anticipated that the intuitive framework introduced here may help in policy design issues around cost containment measures and other market design options such as banking and borrowing (factors that are not currently incorporated into the model).
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    What Does Risk Integration Look Like, Really?
    (Conference Board of Canada, 2010-09) Eaton, Christopher