Hedging of Commodity Risk in an Energy Company

Abstract

This diploma thesis focuses on the quantification and comparison of the hedging effect of two commodity risk management strategies, namely forward hedging and hedging through swing-quanto options, applied to the conditions of a model energy company operating in the Czech and Slovak markets for electricity and natural gas over the period from 2022 to 2024. The methodological framework of the thesis includes the modelling of electricity and natural gas prices and volumes through the GAM+VAR(1) model with the generation of 10 000 scenarios by the Monte Carlo method, the calculation of the hedging effect of the forward strategy based on realised spot prices, and the valuation of the swing-quanto option by the Least-Squares Monte Carlo method. The forward strategy achieved a total hedging effect of 333,09 million EUR, corresponding to a saving of 24,4 % relative to the unhedged position, however with pronounced year-on-year variability from +47,7 % in 2022 to −10,0 % in 2024, while the swing-quanto option achieved a total hedging effect of 55,49 million EUR representing a saving of 4,1 %, maintaining a positive effect in all three years of the observation period. It can be summarized that both instruments constitute complementary solutions, as the forward contract provides liquidity protection in an environment of extreme prices, while the swing-quanto option ensures stable asymmetric protection against simultaneous price and volume shocks without the risk of unlimited loss in periods of market normalisation.