Volume risk is a
commodity risk
Commodity risk refers to the uncertainties of future market values and of the size of the future income, caused by the fluctuation in the prices of commodities. These commodities may be grains, metals, gas, electricity etc. A commodity enterpris ...
which refers to the fact that a player in the commodity market has uncertain quantities of consumption or sourcing, i.e. production of the respective commodity.
Examples of other circumstances which can cause large deviations from a volume forecast are weather (e.g. temperature-changes for gas consumption), the plant-availability, the collective customer outrage, but also regulatory interventions.
Another relevant cause of volatility risk in volumes and (or) prices of commodities is the financial investment in
options or
future contract
In finance, a futures contract (sometimes called a futures) is a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future, between parties not yet known to each other. The asset ...
s related to a commodity, which is achieved with the purpose of
speculating, rather than
hedging in order to reduce the risk of adverse price movements in assets.
Example
An electricity retailer cannot accurately predict the demand of all house holds for a given time which is why the producer cannot forecast the precise time that a
power plant
A power station, also referred to as a power plant and sometimes generating station or generating plant, is an industrial facility for the generation of electric power. Power stations are generally connected to an electrical grid.
Many pow ...
will provide more electricity that consumed, even if the plant always delivers the same output of
energy
In physics, energy (from Ancient Greek: ἐνέργεια, ''enérgeia'', “activity”) is the quantitative property that is transferred to a body or to a physical system, recognizable in the performance of work and in the form of heat a ...
.
See also
*
Spreading activation Spreading activation is a method for searching associative networks, biological and artificial neural networks, or semantic networks. The search process is initiated by labeling a set of source nodes (e.g. concepts in a semantic network) with weig ...
References
External links
* (URL retrieved on
Science Direct
ScienceDirect is a website which provides access to a large bibliographic database of scientific and medical publications of the Dutch publisher Elsevier. It hosts over 18 million pieces of content from more than 4,000 academic journals and 30,0 ...
)
Market risk
Commodities
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