Cristian Iorizzo presenterar sitt examensarbete

A comparison of risk measures on the power market

Abstract:

The most traded product on the Nordic power exchange (Nord Pool) is
electricity futures and forwards. For players on the power market it is of
course of major importance to quantify the risk in the trading of those
products. Nord Pool provides a risk measure called SPAN to all customers.

The main objective of this thesis is to analyse and evaluate SPAN as a
risk measure for a trading department and further to find an alternative
way to quantify the risk for futures and forwards. A suggestion of
quantifying the risk is presented involving the risk measures Value at
Risk and Expected Shortfall using Extreme Value Theory in general and the
Peaks Over Threshold (POT) method in particular. The thesis concludes that
SPAN underestimates the risk by far and that the POT method could be one
way of calculating the risk in a more accurate way.