Study On Calculation Method Of Financial Risk Analysis Of Electricity Market By A Copula Based Approach

The worldwide restructuring and deregulation of electric power industry has led to an active electricity market with much more risk to market participants that they did not have to face during the regulated era .As effective tools for risk management and bilateral transaction, forward contracts or optional forward contracts, futures contract, option contract, have been widely used in competitive electricity markets, and in the future, swaps will also be used. So, to accelerate the electric industry healthily and orderly, systematic study of application of these financial derivative instrument to electricity power market exchange, which is the subject of this paper, is important and urgent。i.e. In the electricity market, the market can bring not only expected income for participants, but also enormous financial risk. So evaluation on financial risk is of great importance.This paper mainly adopts VaR to compute the financial risk of the electric power market. Although traditional VaR calculation the method can get good result in the financial realm, because of the special of the electric power market, it have limit sex that they directly applied at the electric power market financial risk valuation in respectively , the paper imbed the Copula technique into the VaR calculation.That phrase of Copula is firstly used by statistician Abe the Sklar in 1959, means"functions that jion or copule multivariate distribution function to their one-dimensional marginal dirtribution functions".This paper makes use of the Copula theory, use marginal dirtribution functions and a Copula function which links them,get one multivariate distribution function which is more close to actual data and start to build up more valid risk analysis model thus.And using Copula function, can resolve risk and this makes to set up a mold problem to simplify consumedly and also contribute to our analysis and comprehension for financial risk problem in the meantime.This paper makes use of Copula function to calculate the financial risk-VaR of the electric power market and built up thus to the method of financial risk metered valuation of electric power market.There are various kinds of risk factors in electricity market.They correlate closely each other.These risk factors and profit of Utilities Electric CO. correlate also closely. And, withal,these relationship are nonlinear pertinence. In order to solve the relatively problem,this paper brings a kind of comparatively new method of financial risk analysis-Copula function ,whose core is to connect the co-distribution of many random variances with their fringe distributions.The Copula function characterize the mutual relationship.And the Copula functional parameters are estimated by the maximum estimation method.On such basis,the calculation of financial risk of pertinence(VaR) is discussed from the foregoing relationship. Currently, the Copula function exists in the application of the key problem be the choice of function form.Although some cultural literature once put forward a homologous suggestion for the choice problem of Copula function,this problem gets good resolve.Through calculation and analysis, this paper chooses Gumbel Copula to carry on a calculation to the financial risk of electric power market.In particular, this paper still emphasizes the influence of the relativity upon the financial risk of the factor and constructed a Copula function of new form.Based on the data of electricity market, the analysis result shows that the Copula based model is feasible. Further more, the model is valuable in predicting and controlling financial risk of electricity market.