Modeling electricity spot prices: Regime switching models with price-capped spike distributions

Janczura, Joanna and Weron, Rafal (2010): Modeling electricity spot prices: Regime switching models with price-capped spike distributions. Forthcoming in: MEPS'10 Proceedings

Abstract

We calibrate Markov regime-switching (MRS) models to spot (log-)prices from two major power markets. We show that while the price-capped (or truncated) spike distributions do not give any advantage over the standard specification in case of moderately spiky markets (such as NEPOOL), they improve the fit and yield significantly different results in case of extremely spiky markets (such as the Australian NSW market).

• Item Type: MPRA Paper
• Language: English
• Keywords: Electricity spot price; Markov regime-switching model; Price spike; Price cap; Truncated distribution
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation, Validation, and Selection; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C24 - Truncated and Censored Models ; Switching Regression Models ; Threshold Regression Models; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy

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