Premium
A novel risk management framework for natural gas markets
Author(s) -
Pouliasis Panos K.,
Visvikis Ilias D.,
Papapostolou Nikos C.,
Kryukov Alexander A.
Publication year - 2020
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.22067
Subject(s) - futures contract , hedge , normal backwardation , portfolio , risk management , economics , project portfolio management , natural gas , spot contract , econometrics , financial economics , finance , engineering , project management , ecology , management , waste management , biology
This paper examines dynamic hedges in the natural gas futures markets for different horizons and explores the gains from devising risk management strategies. Despite the substantial progress made in developing hedging models, forecast combinations have not been explored. We fill this gap by proposing a framework for combining hedge‐ratio predictions. Composite hedge ratios lead to significant reduction in portfolio risk, whether spot prices are partially predictable or not. We offer insights on hedging effectiveness across seasons, backwardation‐contango conditions and the asymmetric profiles of long‐short hedgers. We conclude that forecast combinations better reconcile realized performance with the hedging process, mitigating model instability.