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- Title
Trading Portfolio Strategy Optimization via Mean-Variance Model Considering Multiple Energy Derivatives.
- Authors
Xu, Shaoshan; Shen, Jun; Hua, Haochen; Li, Fangshu; Yu, Kun; Li, Zhenxing; Gao, Xinqiang; Dong, Xueqiang
- Abstract
Energy retailers that sell energy at fixed prices are at risk of bankruptcy due to instantaneous fluctuations in wholesale electricity prices. Energy derivatives, e.g., electricity options, can be purchased by energy retailers then sold to customers as one potential risk-mitigation tool. A class of energy retailers that trade energy derivatives, including the electricity option, the carbon option and the green certificate, is considered in this paper. In terms of energy retailers, a strategy that can maximize the value of the purchased energy derivatives over a period of time and minimize the risk due to the stochastic price fluctuations is developed. Firstly, the dynamic prices of the electricity option as well as the carbon option are described by stochastic differential equations, and the dynamic prices of the green certificate are described by ordinary differential equations. Historical price data are used to obtain the parameters of both stochastic and ordinary differential equations by maximum likelihood estimation. Next, an investment portfolio is established as a mean-variance portfolio selection problem where the retailer maintains the satisfactory asset value and minimizes the risk simultaneously. Then, the problem is transformed into a stochastic optimal control problem which can be solved analytically by using the linear-quadratic method. Finally, the numerical simulations illustrate the feasibility of the proposed method.
- Subjects
STOCHASTIC differential equations; ORDINARY differential equations; FIXED prices; PRICE fluctuations; MAXIMUM likelihood statistics; STOCHASTIC control theory
- Publication
Processes, 2023, Vol 11, Issue 2, p532
- ISSN
2227-9717
- Publication type
Article
- DOI
10.3390/pr11020532