The Nordic Power Exchange (Nord Pool), the first multinational exchange for electricity trading, has existed since January 1996. Spot and futures contracts are traded on this exchange and its typical characteristics are very high volatilities as well as non-normally distributed returns. This article looks at electricity futures and how they can be used for short-term hedging of positions taken in the spot market. It studies the minimum variance hedge ratio and how it can be estimated in different ways. The traditional naive hedge and the OLS hedge are compared out-of-sample to more elaborate moving average and GARCH hedges, and the empirical results indicate some gains from hedging with futures despite the lack of straight-forward arbitrage possibilities in the electricity market. Furthermore, we find a slightly better performance of the simple OLS hedge compared to the conditional hedges.
In this paper I discuss how blockchains potentially could affect the way credit risk is modeled, and how the improved trust and timing associated with blockchain-enabled real-time accounting could improve default prediction. To demonstrate the (quite substantial) effect the change would have on well-known credit risk measures, a simple case-study compares Z-scores and Merton distances to default computed using typical accounting data of today to the same risk measures computed under a hypothetical future blockchain regime.
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