Extreme value theory and extremely large electricity price changes
AbstractNord Pool, the first multinational exchange for electricity trading, has existed since January 1996. Typical characteristics of electricity prices on Nord Pool are a very high volatility and a large number of very large, or extreme, price changes. In this paper we look at hourly spot prices on NordPool and apply extreme value theory to investigate the tails of the price change distribution. We find a good fit of both the generalized extreme value distribution and the generalized Pareto distribution to AR-GARCH filtered price change series, and accurate estimates as well as forecasts of extreme quantiles are produced. Generally, our results suggest extreme value theory to be of interest to both risk managers and portfolio managers in the highly volatile electricity market.
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Bibliographic InfoArticle provided by Elsevier in its journal International Review of Economics & Finance.
Volume (Year): 14 (2005)
Issue (Month): 1 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/620165
Other versions of this item:
- Byström, Hans, 2001. "Extreme Value Theory and Extremely Large Electricity Price Changes," Working Papers 2001:19, Lund University, Department of Economics.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- G19 - Financial Economics - - General Financial Markets - - - Other
- Q49 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Other
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