Retailer Value-at-Risk in Interconnected Power Markets: An Australian Empirical Analysis

Rangga Handika, Sigit Triandaru


This paper investigates Value-at-Risk (VaR) in the Australian interconnected power markets. We model the price change using seven different volatility models and perform the back testing from both investors’ (sellers’ side) and retailers’ (buyers’ side) perspectives. From investors’ perspective, we find that GARCH (1,1) model outperforms moving average (MA) and EWMA models. On the other hand, the moving average (MA) outperforms various GARCH (1,1) models from retailers’ perspective. Our findings lead to a new insight to analyze carefully the position of modelling risk in power market since different position generates different result.

 Keywords: Power markets; Volatility; Value-at-Risk; Back-testing

JEL Classifications: G17; G32; Q40

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