Risk Management of Electricity Market Based on Perfect Hedge Ratio

At present, electricity market is in the early stages of development in China. From the international experience that many countries which carry out the reform of power industry usually open the electricity futures market after the implementation and completion of the electricity market. The introduction of electricity future contract not only provides profitable opportunities for those involved in electricity market while generation capacity or electrical price changes, but also voids the risks caused by the fluctuation of real-time pricing in electricity market for the electricity generators. Generators can hedge by using the electricity futures contract so that they could take precautions against and control the profit risks more effectively. This paper proposes the perfect hedge ratio based on mathematical statistics, which could maximize the benefit of hedging, tells the main difference between the full hedge and the perfect hedge, and gives the conditions that the perfect hedge occurs At last, the paper describes the future development of electricity futures combined with particular situations in China.