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An hour-ahead prediction model for heavy-tailed spot prices

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  • Kim, Jae Ho
  • Powell, Warren B.

Abstract

We propose an hour-ahead prediction model for electricity prices that capture the heavy tailed behavior that we observe in the hourly spot market in the Ercot (Texas) and the PJM West hub grids. We present a model according to which we separate the price process into a thin-tailed trailing median process and a heavy-tailed residual process whose probability distribution can be approximated by a Cauchy distribution. We show empirical evidence that supports our model.

Suggested Citation

  • Kim, Jae Ho & Powell, Warren B., 2011. "An hour-ahead prediction model for heavy-tailed spot prices," Energy Economics, Elsevier, vol. 33(6), pages 1252-1266.
    • Handle: RePEc:eee:eneeco:v:33:y:2011:i:6:p:1252-1266
    DOI: 10.1016/j.eneco.2011.06.007
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    Citations

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    Cited by:

    1. Coulon, Michael & Powell, Warren B. & Sircar, Ronnie, 2013. "A model for hedging load and price risk in the Texas electricity market," Energy Economics, Elsevier, vol. 40(C), pages 976-988.
    2. Luigi Cirocco & Martin Belusko & Frank Bruno & John Boland & Peter Pudney, 2014. "Optimisation of Storage for Concentrated Solar Power Plants," Challenges, MDPI, vol. 5(2), pages 1-31, December.
    3. Daniel R. Jiang & Warren B. Powell, 2018. "Risk-Averse Approximate Dynamic Programming with Quantile-Based Risk Measures," Mathematics of Operations Research, INFORMS, vol. 43(2), pages 554-579, May.
    4. Ama Agyeiwaa Abrokwah, 2018. "Price and Volatility Spillovers in the Electricity Reliability Council of Texas Day-Ahead Electricity Market," International Journal of Energy Economics and Policy, Econjournals, vol. 8(6), pages 322-330.

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    More about this item

    Keywords

    Heavy-tail; Median-reversion; Mean-reversion; Electricity spot market;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling

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