Janczura, Joanna and Weron, Rafal (2010): An empirical comparison of alternate regimeswitching models for electricity spot prices. Forthcoming in: Energy Economics
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Abstract
One of the most profound features of electricity spot prices are the price spikes. Markov regimeswitching (MRS) models seem to be a natural candidate for modeling this spiky behavior. However, in the studies published so far, the goodnessoffit of the proposed models has not been a major focus. While most of the models were elegant, their fit to empirical data has either been not examined thoroughly or the signs of a bad fit ignored. With this paper we want to fill the gap. We calibrate and test a range of MRS models in an attempt to find parsimonious specifications that not only address the main characteristics of electricity prices but are statistically sound as well. We find that the best structure is that of an independent spike 3regime model with heteroscedastic diffusiontype base regime dynamics and shifted spike regime distributions. Not only does it allow for consecutive spikes or price drops, which is consistent with market observations, but also exhibits the ‘inverse leverage effect’ reported in the literature for spot electricity prices.
Item Type:  MPRA Paper 

Original Title:  An empirical comparison of alternate regimeswitching models for electricity spot prices 
Language:  English 
Keywords:  Electricity spot price; Spikes; Markov regimeswitching; Heteroscedasticity; Inverse leverage effect 
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 
Item ID:  22876 
Depositing User:  Joanna Janczura 
Date Deposited:  25. May 2010 01:03 
Last Modified:  12. Feb 2013 03:16 
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URI:  http://mpra.ub.unimuenchen.de/id/eprint/22876 
Available Versions of this Item

An empirical comparison of alternate regimeswitching models or electricity spot prices. (deposited 07. Feb 2010 22:18)

An empirical comparison of alternate regimeswitching models for electricity spot prices. (deposited 14. Feb 2010 09:47)
 An empirical comparison of alternate regimeswitching models for electricity spot prices. (deposited 25. May 2010 01:03) [Currently Displayed]

An empirical comparison of alternate regimeswitching models for electricity spot prices. (deposited 14. Feb 2010 09:47)