An empirical comparison of alternate regime-switching models for electricity spot prices

Energy Economics

Volumn 32, Issue 5, 2010, Pages 1059-1073

  Janczura, Joanna ^a   Weron, Rafal ^a  

^a WROCLAW UNIVERSITY OF TECHNOLOGY   (Poland)

Author keywords

Electricity spot price; Heteroscedasticity; Inverse leverage effect; Markov regime switching; Spikes

Indexed keywords

ELECTRICITY SPOT PRICE; HETEROSCEDASTICITY; INVERSE LEVERAGE EFFECT; REGIME SWITCHING; SPIKES;

ELECTRICITY; PROBABILITY DISTRIBUTIONS; SWITCHING;

COSTS;

CALIBRATION; COMMODITY PRICE; ELECTRICITY; MARKOV CHAIN; NUMERICAL MODEL; PRICE DYNAMICS;

EID: 77956766629     PISSN: 01409883     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.eneco.2010.05.008     Document Type: Article

References (57)

1. Anderson C.L., Davison M. A hybrid system-econometric model for electricity spot prices: considering spike sensitivity to forced outage distributions. IEEE Transactions on Power Systems 2008, 23(3):927-937.
2. Andreasen J., Dahlgren M. At the flick of a switch 2006, Energy Risk, February, 71-75.
3. Barlow M. A diffusion model for electricity prices. Mathematical Finance 2002, 12:287-298.
4. Becker R., Hurn S., Pavlov V. Modelling spikes in electricity prices. The Economic Record 2007, 83(263):371-382.
5. Benth F.E., Benth J.S., Koekebakker S. Stochastic Modeling of Electricity and Related Markets 2008, World Scientific, Singapore.
6. Benth F.E., Koekebakker S., Ollmar F. Extracting and applying smooth forward curves from average-based commodity contracts with seasonal variation. Journal of Derivatives - Fall 2007, 52-66.
7. 2 emission allowances trading in Europe - specifying a new class of assets. Problems and Perspectives in Management 2006, 4(3):30-40.
8. Bierbrauer M., Trück S., Weron R. Modeling electricity prices with regime switching models. Lect. Notes Comput. Sci. 2004, 3039:859-867.
9. Bierbrauer M., Menn C., Rachev S.T., Trück S. Spot and derivative pricing in the EEX power market. J. Bank. Finance 2007, 31:3462-3485.
10. Borak S., Weron R. A semiparametric factor model for electricity forward curve dynamics. Journal of Energy Markets 2008, 1(3):3-16.
11. Bowden N., Payne J.E. Short term forecasting of electricity prices for MISO hubs: evidence from ARIMA-EGARCH models. Energy Economics 2008, 30:3186-3197.
12. Brockwell P.J., Davis R.A. Introduction to Time Series and Forecasting 1996, Springer-Verlag, New York. 2nd ed.
13. Modelling Prices in Competitive Electricity Markets 2004, Wiley, Chichester. D.W. Bunn (Ed.).
14. Cartea A., Figueroa M., Geman H. Modelling electricity prices with forward looking capacity constraints. Applied Mathematical Finance 2009, 16(2):103-122.
15. Christensen T., Hurn S., Lindsay K. It never rains but it pours: modeling the persistence of spikes in electricity prices. The Energy Journal 2009, 30(1):25-48.
16. Statistical Tools for Finance and Insurance 2005, Springer, Berlin. P. Čižek, W. Härdle, R. Weron (Eds.).
17. Cox J.C., Ingersoll J.E., Ross S.A. A theory of the term structure of interest rates. Econometrica 1985, 53:385-407.
18. Davoust R. Gas Price Formation, Structure & Dynamics: An Integral Overview. Ifri Note 2008.
19. De Jong C. The nature of power spikes: A regime-switch approach. Studies in Nonlinear Dynamics & Econometrics 2006, 10(3). Article 3.
20. Deng S.-J. Stochastic models of energy commodity prices and their applications: mean-reversion with jumps and spikes. PSerc Working Paper 1998, 28-98.
21. Erns, Young The European Generation Mix. Report 1998.
22. Ethier R., Mount T. Estimating the volatility of spot prices in restructured electricity markets and the implications for option values. PSerc Working Paper 1998, 31-98.
23. Eydeland A., Wolyniec K. Energy and Power Risk Management 2003, Wiley, Hoboken, NJ.
24. Fleten S.E., Lemming J. Constructing forward price curves in electricity markets. Energy Economics 2003, 25:409-424.
25. Geman H., Roncoroni A. Understanding the fine structure of electricity prices. Journal of Business 2006, 79:1225-1261.
26. Hamilton J. Analysis of time series subject to changes in regime. Journal of Econometrics 1990, 45:39-70.
27. Hamilton J. Causes and consequences of the oil shock of 2007-08. Brookings Papers on Economic Activity 2009, 2009(1):215-261.
28. Härdle W., Kerkyacharian G., Picard D., Tsybakov A. Wavelets, Approximation and Statistical Applications. Lecture Notes in Statistics 129 1998, Springer-Verlag, New York.
29. Harris C. Electricity Markets: Pricing 2006, Structures and Economics, Wiley, Chichester.
30. Heydari, S., Siddiqui, A., 2010. Valuing a gas-fired power plant: A comparison of ordinary linear models, regime-switching approaches, and models with stochastic volatility. Energy Economics, forthcoming.
31. Huisman R. The influence of temperature on spike probability in day-ahead power prices. Energy Economics 2008, 30:2697-2704.
32. Huisman R., de Jong C. Option pricing for power prices with spikes. Energy Power Risk Management 2003, 7(11):12-16.
33. Huisman R., Mahieu R. Regime jumps in electricity prices. Energy Economics 2003, 25:425-434.
34. Janczura J., Weron R. Regime switching models for electricity spot prices: introducing heteroskedastic base regime dynamics and shifted spike distributions. IEEE Conference Proceedings (EEM'09) 2009, 10.1109/EEM.2009.5207175.
35. Janczura J., Weron R. Efficient estimation of Markov regime-switching models. Working paper 2010.
36. Janczura J., Weron R. Goodness-of-fit testing for regime-switching models. Working paper 2010, Available at MPRA: http://mpra.ub.uni-muenchen.de/22871.
37. Janicki A., Weron A. Simulation and Chaotic Behavior of α-Stable Stochastic Processes 1994, Marcel Dekker, New York.
38. Kaminski V. Managing Energy Price Risk: The New Challenges and Solutions 2004, Risk Books, London. 3rd ed.
39. Kanamura T., Ōhashi K. On transition probabilities of regime switching in electricity prices. Energy Economics 2008, 30:1158-1172.
40. Karakatsani N.V., Bunn D.W. Intra-day and regime-switching dynamics in electricity price formation. Energy Economics 2008, 30:1776-1797.
41. Khan, M.S., 2009. The 2008 Oil Price "Bubble". Peterson Institute for International Economics Paper PB09-19.
42. Kim C.-J. Dynamic linear models with Markov-switching. Journal of Econometrics 1994, 60:1-22.
43. Kluge, T., 2006. Pricing swing options and other electricity derivatives. Ph.D. Thesis, University of Oxford.
44. Knittel C.R., Roberts M.R. An empirical examination of restructured electricity prices. Energy Economics 2005, 27:791-817.
45. Kosater P., Mosler K. Can Markov regime-switching models improve power-price forecasts? Evidence from German daily power prices. Appl. Energy 2006, 83:943-958.
46. Lucheroni C. Stochastic models of resonating markets. Journal of Economic Interaction & Coordination 2009, 10.1007/s11403-009-0058-6.
47. Mari C. Random movements of power prices in competitive markets: a hybrid model approach. Journal of Energy Markets 2008, 1(2):87-103.
48. Mount T.D., Ning Y., Cai X. Predicting price spikes in electricity markets using a regime-switching model with time-varying parameters. Energy Economics 2006, 28:62-80.
49. Nelson D.B. Conditional heteroskedasticity in asset returns: a new approach. Econometrica 1991, 59:347-370.
50. NPCC, 2007. NPCC Statistical Brochure.
51. PJM, 2009. State of the Market Report.
52. Ramsey J.B. Wavelets in economics and finance: past and future. Studies in Nonlinear Dynamics & Econometrics 2002, 6(3). Article 1.
53. Trück S., Weron R., Wolff R. Outlier treatment and robust approaches for modeling electricity spot prices. Proceedings of the 56th Session of the ISI 2007, Available at MPRA: http://mpra.ub.uni-muenchen.de/4711/.
54. Vasicek O. An equilibrium characterization of the term structure. Journal of Financial Economics 1977, 5:177-188.
55. Weron R. Modeling and Forecasting Electricity Loads and Prices: A Statistical Approach 2006, Wiley, Chichester.
56. Weron R. Heavy-tails and regime-switching in electricity prices. Math. Meth. Oper. Res. 2009, 69(3):457-473.
57. Weron R., Bierbrauer M., Trück S. Modeling electricity prices: jump diffusion and regime switching. Physica A 2004, 336:39-48.