A1016
Title: Modern portfolio theory with seasonal assets
Authors: Sondre Hoelleland - Norwegian School of Economics (Norway) [presenting]
Haakon Otneim - Norwegian School of Economics (Norway)
Geir Drage Berentsen - Norwegian School of Economics (Norway)
Konstantinos Fokianos - University of Cyprus (Cyprus)
Abstract: The main application of modern portfolio theory (MPT) is in financial portfolio optimization. For a given expected return, the portfolio variance is minimized. The finance literature has moved on to using other risk measures, but the MPT has found other application fields. Recent applications include renewable energy planning, such as citing wind farms, optimal wind-solar energy mixes or cross-border energy resource allocation. Most renewable energy sources have strong seasonal dynamics that the traditional MPT framework does not consider. The consequences of applying the standard procedure on assets are analyzed with underlying seasonal dynamics. A modified formulation of the classical MPT is proposed, leaving the investor in complete control over how seasonality should be handled in a given practical problem. The suggested approach is demonstrated using empirical examples from renewable energy resource allocation problems.
