Hedging against Black Swans in Day-Ahead Energy Markets
Abstract
Renewable generators must commit to day-ahead market bids despite uncertainty in both production and real-time prices. While forecasts provide valuable guidance, rare and unpredictable extreme events (so-called black swans) can cause substantial financial losses. This paper models the nomination problem as an instance of optimal transport-based distributionally robust optimization (OT-DRO), a principled framework that balances risk and performance by accounting not only for the severity of deviations but also for their likelihood. The resulting formulation yields a tractable, data-driven strategy that remains competitive under normal conditions while providing effective protection against extreme price spikes. Using four years of Finnish wind farm and market data, we demonstrate that OT-DRO consistently outperforms forecast-based nominations and significantly mitigates losses during black swan events.
Keywords
Cite
@article{arxiv.2510.14328,
title = {Hedging against Black Swans in Day-Ahead Energy Markets},
author = {Liviu Aolaritei and Boubacar Bangoura and Saverio Bolognani and Nicolas Lanzetti and Florian Dörfler},
journal= {arXiv preprint arXiv:2510.14328},
year = {2025}
}