Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/104315
Authors: 
Scholz, Sebastian
Year of Publication: 
2010
Series/Report no.: 
Munich Discussion Paper 2010-3
Abstract: 
Upstream producers that possess market power, sell forwards with a lengthy duration to regional electricity companies (REC). As part of the liberalization of the electricity market, RECs have been privatized and exposed to a possible bankruptcy threat if spot prices have fallen below their expected value. The downstream firms’ expected profit is larger, when it is less likely to be bailed out, the effect on upstream profits is ambiguous while consumers loose. Options are less welfare increasing than forwards, but the difference is minimal. In the presence of bankruptcy, options are the preferred welfare maximizing market instrument.
Subjects: 
Forwards
Options
Default Risk
Market Efficiency
JEL: 
D43
G33
G34
G35
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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