本科毕业论文（设计）
外 文 翻 译
原文一：
Application of VAR in Financial Risk Analysis of Electricity Markets
Abstract: In this paper, the necessity to study financial risks in electricity markets, the application of the Value at Risk (VaR) method and the feasibility of historical simulations are firstly introduced and discussed. Then the gross profit, daily VaR and weekly VaR models of an electricity company (the unique buyer) based on practical conditions of the Zhejiang electricity markets are presented, and the corresponding computational results are reported. Furthermore, the application of historical simulations in financial risk investigations of electricity markets is analyzed, and the influence of the two factors (contracted price Pc and contract rate k) of CFD (Contract For Difference) on the company’s gross profit and daily VaR are discussed. The numerical results revealed that the historical simulation is suitable to analyze and to predict the short-term financial risk (next day or next week) of electricity market. It is intuitive, simple and easy to implement.
1. Introduction
The worldwide reconstruction and deregulation of electricity industry is giving rise to competitions and vigor to the previously monopolistic market. However, these are also accompanied by risks which have never been experienced by market participants (electricity companies), especially in terms of the fluctuation of the electricity price. As contrary to other commodities electricity cannot be stored and there is a need to maintain an instantaneous balance between the supply and consumption. However, consumption changes cannot be met easily from electricity storages. So the equilibrium price of electricity markets will vary stochastically as the load changes. Therefore, there will be drastic jumping or peak characteristics in electricity price due to the limitation in power generation and output capacities.
Because of the monopoly of electricity markets, some electricity producers may dominate the prices, which will make the price variation complicated.Moreover, the tendency of commoditization in the electricity industry are aggravating the risks in the whole electricity system. The risks include traditional technical risks, more importantly, the vast financial risk from market prices. All these risks may occur simultaneously and affect each other, making the risks forecasting and management to be more complicated and difficult. However, in the past decade, researchers and engineers paid little attentions to this complexity in the operations of electricity markets.
When the crisis of California electricity market occurred, one began to realize the substantial financial risks in electricity markets and paid great attention to them. It is proven that a great financial risk in electricity markets may result in serious negative effects to social and economic developments. For example, the Crisis of California electricity market brought a vast loss of 13 billion USD to the largest two utility electric companies in California, making them almost bankrupt. To solve this crisis, the State Government of California had to use billions of public funds and issued IO billions of government bonds to help the companies to get out of their crisis. Therefore, a correct assessment of financial risks in electricity markets can contribute efficient supervisions of the market and is very important and necessary for safeguarding the stable running of the markets.
So far, the research of theoretical algorithms of financial risks in electricity markets is still in its infant stage. The preliminary explorations of the analysis, algorithm and prevention of financial risks in electricity market have been made in[1,2,3,4]. However, the algorithm and numerical results are too simple to be used in engineering applications. VaR risk assessment method has been developed for 8-9 years, and is very popular in the financial market analysis. This method is proven to be a successful on in the forecast and assessment of financial risks in financial systems. The electricity market differs from financial market in terms of ways of showing prices. Financial markets use financial asset price and it fluctuation, while electricity market uses electricity price and its fluctuation. So, if one uses the
expression of the electricity price to replace that of the financial assets with full considerations of fluctuations of the electricity price, one will transplant the concept of VaR from the financial field into the electricity market Thus, it is possible to use this method to forecast and to assess the financial risk in electricity markets. The applications of VaR in the financial risk analysis of electricity markets have been studied in [5,6], but those in the assessment of financial risk have not been reported so far. Presently, three methods are mainly used in VaR computation analysis, i.e., the historical simulation, the analytical method, and the Monte Carlo simulation. The historical simulation method is proposed in this paper to predict short-term (next day or next week) financial risks of electricity markets.
2. VaR Method
In 1994, J.P.Morgan Bank first proposed VaR approach for risk analyzing, which is called by the author as “RiskMetrice”. Subsequently, VaR is extensively studied and widely applied in world financial systems. Now, VaR has become the most important means to assess financial risk by various financial organizations.
2.1. Concept of VaR
VaR stands for Value at Risk, i.e., the amount of money which might he lost with a given probability. In practical terms, VaR measures for a financial asset or portfolio of the worst expected loss to a specified probability (the confidence level) during a given time period under normal market conditions, i.e.,
Prob(ΔP > VaR) = 1 -c (1)
Where ΔP is the loss of the financial asset or portfolio within the holding period, and VaR is the value at risk with the confidence level c. 2.2 Principle of Historical Simulation
In Historical Simulation, the future changes of the market factors are predicted through the observed changes of the market factors during a given historical period. Historical Simulation is a full valuation method that involves: (1) revaluing the assets and the portfolio according to the future price level of the market factor and then calculates the price changes, i.e. profit and loss (P&L); (2) arranging the P&L in an increasing order to get the P&L distribution; (3) getting VaR through the quantile
外文翻译--风险价值法在电力市场财务风险分析中的应用
