Janczura, Joanna and Weron, Rafal (2009): Regime-switching models for electricity spot prices: Introducing heteroskedastic base regime dynamics and shifted spike distributions. Published in: IEEE Conference Proceedings (2009)
Download (261Kb) | Preview
We calibrate Markov regime-switching (MRS) models to mean daily spot prices from the EEX market. Our empirical study shows that (i) models with shifted spike regime distributions lead to more realistic models of electricity spot prices and that (ii) introducing heteroskedasticity in the base regime leads to better spike identification and goodness-of-fit than in MRS models with the standard mean-reverting, constant volatility dynamics.
|Item Type:||MPRA Paper|
|Original Title:||Regime-switching models for electricity spot prices: Introducing heteroskedastic base regime dynamics and shifted spike distributions|
|Keywords:||regime-switching, heteroskedasticity, electricity spot price|
|Subjects:||C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q4 - Energy > Q47 - Energy Forecasting
L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L94 - Electric Utilities
C - Mathematical and Quantitative Methods > C2 - Single Equation Models; Single Variables > C22 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
|Depositing User:||Rafal Weron|
|Date Deposited:||21. Nov 2009 15:17|
|Last Modified:||11. Feb 2013 17:43|
 M. Bierbrauer, C. Menn, S.T. Rachev, S. Trueck (2007) Spot and derivative pricing in the EEX power market. J. Banking & Finance 31: 3462-3485.
 M. Bierbrauer, S. Trueck, R. Weron (2004) Modeling electricity prices with regime switching models. Lect. Notes in Computer Sci. 3039: 859-867.
 D.W. Bunn, ed. (2004) Modelling Prices in Competitive Electricity Markets. Wiley, Chichester.
 J.C. Cox, J.E. Ingersoll, S.A. Ross (1985) A theory of the term structure of interest rates. Econometrica 53: 385-407.
 C. de Jong (2006) The nature of power spikes: A regime-switch approach. Stud. Nonlinear Dynamics & Econometrics 10(3), Article 3.
 A. Dempster, N. Laird, D.B. Rubin (1977) Maximum likelihood from incomplete data via the EM algorithm. J. Royal Statistical Soc. 39: 1-38.
 R. Ethier, T. Mount (1998) Estimating the volatility of spot prices in restructured electricity markets and the implications for option values. PSerc Working Paper 98-31.
 J. Hamilton (1990) Analysis of time series subject to changes in regime. J. Econometrics 45: 39-70.
 R. Huisman, C. de Jong (2003) Option pricing for power prices with spikes. Energy Power Risk Management 7.11: 12-16.
 R. Huisman, R. Mahieu (2003) Regime jumps in electricity prices. Energy Economics 25: 425-434.
 J. Janczura, R. Weron (2009) An empirical comparison of alternate regime-switching models for electricity spot prices. HSC Working Paper.
 C.-J. Kim (1994) Dynamic linear models with Markov-switching. J. Econometrics 60: 1-22.
 C.R. Knittel, M.R. Roberts (2005) An empirical examination of restructured electricity prices. Energy Economics 27(5): 791-817.
 A. Ockenfels, V. Grimm, G. Zoettl (2008) Electricity market design. EEX Report.
 I. Simonsen (2005) Volatility of power markets. Physica A 355: 10-20.
 S. Trueck S, R. Weron, R. Wolff (2007) Outlier treatment and robust approaches for modeling electricity spot prices. Proceedings of the 56th Session of the ISI. Available at http://mpra.ub.uni-muenchen.de/4711/.
 O. Vasicek (1977) An equilibrium characterization of the term structure. J. Financial Econometrics 5: 177-188.
 R. Weron (2006) Modeling and forecasting electricity loads and prices: A statistical approach. Wiley, Chichester.
 R. Weron (2008) Heavy-tails and regime-switching in electricity prices, Math. Meth. Oper. Res.: Online First DOI 10.1007/s00186-008-0247-4.