Modeling electricity spot prices - Combining mean-reversion, spikes and stochastic volatility

Arbeitspapier

Starting with the liberalization of electricity trading, this market grew rapidly over the last decade. However, while spot and future markets are rather liquid nowadays, option trading is still limited. One of the potential reasons for this is that the spot price process of electricity is still puzzling researchers and practitioners. In this paper, we propose an approach to model spot prices that combines mean-reversion, spikes and stochastic volatility. Thereby we use different mean-reversion rates for 'normal' and 'extreme' (spike) periods. Another feature of the model is its ability to capture correlation structures of electricity price spikes. Furthermore, all model parameters can easily be estimated with help of historical data. Consequently, we argue that this model does not only extend academic literature on electricity spot price modeling, but is also suitable for practical purposes, e.g. as underlying price model for option pricing.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Working Paper ; No. 2011-02

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Financial Forecasting and Simulation
• Thema: Electricity ; Energy markets ; Lévy processes ; Mean-reversion ; Spikes ; Stochastic volatility ; GARCH ; Stromhandel ; Optionsgeschäft ; Spotmarkt ; Stromtarif ; Volatilität ; Stochastischer Prozess ; ARCH-Modell

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Mayer, Klaus ; Schmid, Thomas ; Weber, Florian
• Ereignis: Veröffentlichung
• (wer): Technische Universität München, Center for Entrepreneurial and Financial Studies (CEFS)
• (wo): München
• (wann): 2011

Weitere Informationen

• Handle: http://hdl.handle.net/10419/48424
• Letzte Aktualisierung: 10.03.2025, 11:45 MEZ