Motivated by the controversial empirical evidence, we deeply investigate the model proposed by Bessembinder and Lemmon (2002) and their hypotheses. We inspect the accuracy of the forward premium approximation when expressed in terms of wholesale prices, and try to unveil its dependency on price kurtosis. We derive the analytical formula of the forward risk premium in terms of the first two moments of demand and relax the assumption of normality. Finally, we study the dependence of the premium in terms of the demand skewness and kurtosis.
Revisiting Risk Premia in Electricity Markets / Angelica Gianfreda; Giacomo Scandolo. - ELETTRONICO. - (2022), pp. 291-296. [10.1007/978-3-030-99638-3_47]
Revisiting Risk Premia in Electricity Markets
Giacomo Scandolo
2022
Abstract
Motivated by the controversial empirical evidence, we deeply investigate the model proposed by Bessembinder and Lemmon (2002) and their hypotheses. We inspect the accuracy of the forward premium approximation when expressed in terms of wholesale prices, and try to unveil its dependency on price kurtosis. We derive the analytical formula of the forward risk premium in terms of the first two moments of demand and relax the assumption of normality. Finally, we study the dependence of the premium in terms of the demand skewness and kurtosis.
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