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arXiv · 2510.14328

Hedging against Black Swans in Day-Ahead Energy Markets

Liviu Aolaritei·Boubacar Bangoura·Saverio Bolognani·Nicolas Lanzetti·Florian Dörfler
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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.

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Liviu Aolaritei, Boubacar Bangoura, Saverio Bolognani, Nicolas Lanzetti, Florian Dörfler. 2025-10-16. Hedging against Black Swans in Day-Ahead Energy Markets. https://arxiv.org/abs/2510.14328

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