| dc.description.abstract | Presented in collaboration with Hafslund Eco, this thesis examines the process
of decision making for a Norwegian hydropower producer over the medium term.
As part of this process, risk modelling and optimization of the hedging strategy
are undertaken in order to establish an e↵ective frontier between the expected
income and downside risk. The e↵ective frontier reveals the relationship between
expected income and downside risk, more specifically how minimizing downside
risk influences expected income. Having such a model available is a valuable decision
support tool for anyone involved in managing the hedging portfolio of a
hydropower company. Therefore, the author of this thesis considers it to be an
important element of risk management. The main contributions made by this
thesis include a stochastic optimization model for optimizing the hedging portfolio
of a Norwegian hydropower producer and a general analysis of this model.
Additionally, this thesis examines the cost of eliminating the lower-tail outcomes.
By eliminating lower-tail outcomes from the revenue distribution, higher-tail outcomes
are to some extent eliminated as well. However, this depends on the distribution
of the price scenarios and how volatile these are. The model can be used
for speculative trading as well as for hedging. As a result, the thesis compares the
two scenarios in terms of expected income, low income scenarios and high income
scenarios. The thesis concludes with a discussion of tax e↵ects on downside risk
and hedging. | en_US |
