Delta-Hedging

The market offering of thermal power generation to the forward market is becoming more and more difficult due to the decline of forward prices. In the past, when peak products were traded it was assumed that the thermal power plants would most likely remain open in peak hours. Due to today’s uncertainties in dark/spark spreads, however, standstills in peak hours has to be considered.

The optimal hold positions in each forward product with regard to uncertainties in generation spreads is the delta position. The delta position is based on stochastic optimization and is determined with a sufficiently high number of correlated and cointegrated scenarios of electricity, fuel and CO2 prices:

• In the first instance, the delta positions are calculated for each hour of the trading horizon.
• In the secound instance, they are decomposed with a special algorithm into real forward products.

With a delta-hedged forward portfolio, changes in spreads lead to value-neutral changes in the forward product positions.

DT.Plantval is in use with proven success for the company Trianel GmbH in Aachen as well as for several Austrian energy companies.