Integrated risk management model for portfolio selection in multiple markets

Risk management is a serious challenge for generating companies (gencos), because of price uncertainty in production resource procurement and selling generation outcome. Managing risk of either trading side without considering other may lead to inefficient risk management. Considering interrelated nature of market uncertainties this paper proposes integrated risk management framework for strategic trading decision making in all involved markets, in order to maximize overall expected profits. Spot and contract markets have been considered as available trading options in involved markets. Mean variance portfolio theory has been applied to solve the problem. The results from a realistic case study illustrates that decisions based on proposed approach provide better trade-off in terms of profit and risk. Revenue and cost side correlation give a new insight for diversification in portfolio selection in different trading side markets.</p