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Hedging performance and multiscale relationships in the German electricity spot and futures markets

Multidisciplinary Digital Publishing Institute
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  • Dynamic And Static Hedging
  • Electricity Futures And Spot Prices
  • Discrete And Continuous Wavelets Coherence And Phase
  • Optimal Hedge Ratio
  • Multivariate Garch


We explore optimal hedge ratios and hedging effectiveness for the German electricity market. Given the increasing attention that wavelets received in the financial market, we concentrate on the investigation of the relationship, covariance/coherence evolution and hedge ratio analysis, on a time-frequency-scale approach (discrete and continuous), between electricity spot and futures. Simpler approaches are also used for comparison purposes like the naïve, OLS and the dynamic multivariate GARCH model in order to account for risk reduction through hedging. Results allow us to conclude that: dynamic hedging strategies provide higher variance reductions in terms of hedging effectiveness

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