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Article

Practical Applications of Volumetric Risk Hedging Strategies and Basis Risk Premium for Solar Power

Takashi Kanamura
The Journal of Alternative Investments 22 (Supplement4) 1-5; DOI: https://doi.org/10.3905/jai.22.s4.030
Takashi Kanamura
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Practical Applications

In Volumetric Risk Hedging Strategies and Basis Risk Premium for Solar Power, published in the Summer 2020 issue of The Journal of Alternative Investments, Takashi Kanamura of Kyoto University helps meet the need for new tools to manage the risks involved with generating renewable energy. The economics of hedging the risks associated with the production of renewable energy are fundamentally different from those associated with traditional energy products. The author makes a unique contribution to the literature by providing a framework for pricing solar energy options. Conventional means of option pricing rely on the notion of a replicating portfolio. Yet, in the case of renewable energy, where prices for the underlying asset do not exist, and the market is incomplete, traditional pricing techniques are not possible. The author instead applies a method of establishing “good-deal bounds” (Cochrane 2000). This approach rules out excessively good prices that can result in arbitrage opportunities or unsustainably high Sharpe ratios. His empirical estimates further illustrate that there is a basis risk when using weather derivatives as a proxy for a solar energy option.

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The Journal of Alternative Investments: 22 (Supplement4)
The Journal of Alternative Investments
Vol. 22, Issue Supplement4
31 Jul 2020
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Practical Applications of Volumetric Risk Hedging Strategies and Basis Risk Premium for Solar Power
Takashi Kanamura
The Journal of Alternative Investments Jul 2020, 22 (Supplement4) 1-5; DOI: 10.3905/jai.22.s4.030

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Practical Applications of Volumetric Risk Hedging Strategies and Basis Risk Premium for Solar Power
Takashi Kanamura
The Journal of Alternative Investments Jul 2020, 22 (Supplement4) 1-5; DOI: 10.3905/jai.22.s4.030
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  • Article
    • Practical Applications
    • Key Takeaways
    • Key Definitions
    • Discussion
    • TEMPERATURE DERIVATIVES AND THE TEMPERATURE-BASED SOLAR OPTION
    • ACCUMULATED SOLAR POWER GENERATION DAYS
    • GOOD-DEAL BOUNDS
    • BASIS RISK PREMIUM
    • References
    • Takashi Kanamura
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