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A Novel Risk Management Framework for Natural Gas Markets

Pouliasis, P. K. ORCID: 0000-0002-7389-3722, Visvikis, I.D., Papapostolou, N. C. ORCID: 0000-0003-4529-1182 and Kryukov, A. A. (2019). A Novel Risk Management Framework for Natural Gas Markets. Journal of Futures Markets, doi: 10.1002/fut.22067

Abstract

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 tested. 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, backwardationcontango 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.

Publication Type: Article
Additional Information: This is the peer reviewed version of the following article:Pouliasis, PK, Visvikis, ID, Papapostolou, NC, Kryukov, AA. A novel risk management framework for natural gas markets. J Futures Markets. 2019; 1– 30., which is published in final form at https://doi.org/10.1002/fut.22067. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions
Publisher Keywords: Natural gas; Dynamic futures hedging; Forecast combination
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
H Social Sciences > HG Finance
Departments: Cass Business School > Finance
URI: http://openaccess.city.ac.uk/id/eprint/22912
[img] Text - Accepted Version
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