USING EXTREME VALUE THEORY TO EVALUATE CONDITIONAL VAR FOR RISK MANAGEMENT IN ELECTRICITY MARKETS
DOI:
https://doi.org/10.11113/jt.v78.5744Keywords:
Extreme value theory (EVT), generalized Pareto distribution (GPD), Conditional Value-at-Risk (CVaR), Likelihood Moment EstimationAbstract
In a deregulated power market, generation companies attempt to maximize their profits and minimize their risks. This paper proposes a risk model for bidding strategy of generation companies based on EVT-CVaR method. Extreme Value Theory can overcome shortcomings of traditional methods in computing financial risk based on value-at-risk and conditional value-at-risk method. Also, generalized Pareto distribution is suggested to model tail of an unknown distribution and parameters of the GPD are estimated by likelihood moment method. Numerical results for risk assessment using the proposed approach are presented for IEEE 30-bus test system. According to the findings, this method can be used as a robust technique to calculate the risk for bidding strategy of generation companies.
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