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Factor models in the German electricity market: Stylized facts, seasonality, and calibration

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  • Hinderks, W.J.
  • Wagner, A.

Abstract

The class of arithmetic factor models is flexible enough to model all stylized facts occurring in electricity markets, including negative prices, while still yielding tractable derivative prices. In this paper we conduct a thorough review of the requirements and possibilities of factor models. We compare different seasonality functions and study their power to deseasonalise day-ahead spot prices from the EPEX Germany/Austria market. Furthermore, we introduce an alternative method to estimate mean reversion speed based on ARMA time series and a method to evaluate the distributional fit of the model to realised market prices, which we apply to two non-Gaussian estimated models.

Suggested Citation

  • Hinderks, W.J. & Wagner, A., 2020. "Factor models in the German electricity market: Stylized facts, seasonality, and calibration," Energy Economics, Elsevier, vol. 85(C).
    • Handle: RePEc:eee:eneeco:v:85:y:2020:i:c:s0140988319301033
    DOI: 10.1016/j.eneco.2019.03.024
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    Cited by:

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    3. Christian Laudag'e & Florian Aichinger & Sascha Desmettre, 2023. "A Comparative Study of Factor Models for Different Periods of the Electricity Spot Price Market," Papers 2306.07731, arXiv.org, revised Sep 2023.
    4. Andrés Oviedo-Gómez & Sandra Milena Londoño-Hernández & Diego Fernando Manotas-Duque, 2021. "Effects of the COVID-19 Pandemic on the Spot Price of Colombian Electricity," Energies, MDPI, vol. 14(21), pages 1-14, October.
    5. Hugo Algarvio, 2023. "The Economic Sustainability of Variable Renewable Energy Considering the Negotiation of Different Support Schemes," Sustainability, MDPI, vol. 15(5), pages 1-21, March.
    6. Wagner, Andreas & Ramentol, Enislay & Schirra, Florian & Michaeli, Hendrik, 2022. "Short- and long-term forecasting of electricity prices using embedding of calendar information in neural networks," Journal of Commodity Markets, Elsevier, vol. 28(C).
    7. Thomas Deschatre & Olivier F'eron & Pierre Gruet, 2021. "A survey of electricity spot and futures price models for risk management applications," Papers 2103.16918, arXiv.org, revised Jul 2021.
    8. Maren Diane Schmeck & Stefan Schwerin, 2021. "The Effect of Mean-Reverting Processes in the Pricing of Options in the Energy Market: An Arithmetic Approach," Risks, MDPI, vol. 9(5), pages 1-19, May.

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    More about this item

    Keywords

    Electricity price model; Calibration; Arithmetic factor models; Seasonality functions;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • 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
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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