Janczura, Joanna and Weron, Rafal (2010): An empirical comparison of alternate regime-switching models for electricity spot prices. Forthcoming in: Energy Economics
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One of the most profound features of electricity spot prices are the price spikes. Markov regime-switching (MRS) models seem to be a natural candidate for modeling this spiky behavior. However, in the studies published so far, the goodness-of-fit 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 3-regime model with heteroscedastic diffusion-type 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 regime-switching models for electricity spot prices|
|Keywords:||Electricity spot price; Spikes; Markov regime-switching; 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
|Depositing User:||Joanna Janczura|
|Date Deposited:||25. May 2010 01:03|
|Last Modified:||12. Feb 2013 03:16|
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An empirical comparison of alternate regime-switching models or electricity spot prices. (deposited 07. Feb 2010 22:18)
An empirical comparison of alternate regime-switching models for electricity spot prices. (deposited 14. Feb 2010 09:47)
- An empirical comparison of alternate regime-switching models for electricity spot prices. (deposited 25. May 2010 01:03) [Currently Displayed]
- An empirical comparison of alternate regime-switching models for electricity spot prices. (deposited 14. Feb 2010 09:47)