Nowotarski, Jakub and Tomczyk, Jakub and Weron, Rafal (2012): Robust estimation and forecasting of the longterm seasonal component of electricity spot prices.

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Abstract
When building stochastic models for electricity spot prices the problem of uttermost importance is the estimation and consequent forecasting of a component to deal with trends and seasonality in the data. While the shortterm seasonal components (daily, weekly) are more regular and less important for valuation of typical power derivatives, the longterm seasonal components (LTSC; seasonal, annual) are much more difficult to tackle. Surprisingly, in many academic papers dealing with electricity spot price modeling the importance of the seasonal decomposition is neglected and the problem of forecasting it is not considered. With this paper we want to fill the gap and present a thorough study on estimation and forecasting of the LTSC of electricity spot prices. We consider a battery of models based on Fourier or wavelet decomposition combined with linear or exponential decay. We find that all considered waveletbased models are significantly better in terms of forecasting spot prices up to a year ahead than all considered sinebased models. This result questions the validity and usefulness of stochastic models of spot electricity prices built on sinusoidal longterm seasonal components.
Item Type:  MPRA Paper 

Original Title:  Robust estimation and forecasting of the longterm seasonal component of electricity spot prices 
Language:  English 
Keywords:  Electricity spot price; Longterm seasonal component; Robust modeling; Forecasting; Wavelets 
Subjects:  C  Mathematical and Quantitative Methods > C5  Econometric Modeling > C53  Forecasting and Prediction Methods; Simulation Methods C  Mathematical and Quantitative Methods > C4  Econometric and Statistical Methods: Special Topics > C45  Neural Networks and Related Topics Q  Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q4  Energy > Q47  Energy Forecasting C  Mathematical and Quantitative Methods > C8  Data Collection and Data Estimation Methodology; Computer Programs > C80  General 
Item ID:  42563 
Depositing User:  Rafal Weron 
Date Deposited:  12. Nov 2012 14:45 
Last Modified:  12. Feb 2013 19:13 
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URI:  http://mpra.ub.unimuenchen.de/id/eprint/42563 