Evaluation of margining solutions for the power market spot products

Abstract

The required amount of collateral (margin) for buyers and sellers of electricity in spot market depends on the committed risk management limits to fulfill necessary margining requirements. Different models are offered to calculate base collateral as a function of maximum net short position for a single delivery day, historical worst case difference between the index price and the market price, closing horizon, distribution of margining account balance, short-term interest rate, etc. While the general framework of these models is similar, they differ in the way they incorporate historical exposure, volatility and risk parameters. This paper provides an extensive insight over the performance of margining models based on an empirical study of Day-Ahead spot market trades data in Nord Pool Spot (2011-2013). The findings provide a basis for constructing a margin efficiency optimizing model to choose margin models and calibrate their parameters.