Power plant hedging strategies
A comparison of common delta-hedging strategies and calculations finds that simple formulas used to calculate delta hedges can lead to severe biases. Cyriel de Jong, Hans van Dijken and Alexandra Bundalova suggest a relatively fast, but more accurate calculation method
Companies in energy markets employ a wide variety of trading and hedging strategies for their power stations. All strategies basically stem from the wish to maximise profit or minimise risk, or both. In this article we explain the logic of several such strategies and compare various ways of implementing these for gas and coal-fired power stations. We focus in particular on the delta-hedging strategy and ways to calculate deltas.
PDF of the full article, including figures, is available here
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