Predictive Trading Strategy for Physical Electricity Futures

• Type: Article in International Scientific Journal
• Date: 2020

Authors

Cláudio Monteiro (Author) FEUP; Alfredo Fernandez Jimenez, LA (Author) Other; Ramirez Rosado, IJ (Author) Other

Journal

Title: Energies

Vol. 13 No. 1

Final page: 3555

ISSN: 1996-1073

Publisher: MDPI

Indexing

ISI Web of Knowledge - 6 Citations

Scopus - 6 Citations

Other information

Authenticus ID: P-00S-JRX

DOI: 10.3390/en13143555

Abstract (EN): This article presents an original predictive strategy, based on a new mid-term forecasting model, to be used for trading physical electricity futures. The forecasting model is used to predict the average spot price, which is used to estimate the Risk Premium corresponding to electricity futures trade operations with a physical delivery. A feed-forward neural network trained with the extreme learning machine algorithm is used as the initial implementation of the forecasting model. The predictive strategy and the forecasting model only need information available from electricity derivatives and spot markets at the time of negotiation. In this paper, the predictive trading strategy has been applied successfully to the Iberian Electricity Market (MIBEL). The forecasting model was applied for the six types of maturities available for monthly futures in the MIBEL, from 1 to 6 months ahead. The forecasting model was trained with MIBEL price data corresponding to 44 months and the performances of the forecasting model and of the predictive strategy were tested with data corresponding to a further 12 months. Furthermore, a simpler forecasting model and three benchmark trading strategies are also presented and evaluated using the Risk Premium in the testing period, for comparative purposes. The results prove the advantages of the predictive strategy, even using the simpler forecasting model, which showed improvements over the conventional benchmark trading strategy, evincing an interesting hedging potential for electricity futures trading.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 25