Shape risk in finance is a type of basis risk when hedging a load
profile with standard hedging products having a lower granularity. In
other words a commodity supplier wants to pre-purchase supplies for
expected demand, but can only buy in fixed amounts that are bigger
than the demand forecasted. This means it has to either over order or
under order and make up the difference at the time of delivery at the
spot price which might be much higher.
Shape risk is also related to
For example an electricity provider has to produce or buy electricity
in advance in order to distribute to its consumers based on forecasts
i.e. how much energy will be consumed every minute on the following
day. Such forecasts are usually based on the average historical
consumption of the same set of customers; however, the provider can
only produce e.g. only hourly blocks of electricity of 1MWh, and not
smaller quantities. There is a certain financial risk that the
provider produces too less energy and thus has to buy the remaining
power from a market opponent for a high spot price to be able to
fulfill the need of its customers.
^ Bokermann, Markus (Jan 2009). Kompaktwissen Strom- und Gashandel.
Düsseldorf: Euroforum Verlag GmbH.
This finance-related article is a stub. You can help by
Financial risk and financial risk management
Consumer credit risk
Commodity risk (e.g. Volume risk, Basis risk, Shape risk, Holding
period risk, Price area risk)
Interest rate risk
Liquidity risk (e.g. Refinancing risk)
Operational risk management
Modern portfolio theory
Risk (VaR) and extensions Profit at risk, Margin at risk,
Liquidity at risk