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Decomposing electricity prices with jumps

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Author Info
Eduardo Martínez Chombo (Banco de México)
Abstract

We propose a model that decomposes electricity prices into two independent stochastic processes: one that represents the “normal” pattern of electricity prices and other that captures temporary shocks, or “jumps”, with non-lasting effects in the market. Each contains specific mean reverting parameters to estimate. In order to identify such components we specify a state-space model with regime switching and apply the Kim's (1994) filtering algorithm to estimate the model for the mean adjusted series of New South Wales' electricity prices. Finally, bootstrap simulations were performed to estimate the expected contribution of each of the components in the overall electricity prices.

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File URL: http://revistas.colmex.mx/revistas/12/art_12_696_3891.pdf
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Article provided by El Colegio de México, Centro de Estudios Económicos in its journal Estudios Económicos.

Volume (Year): 20 (2005)
Issue (Month): 1 ()
Pages: 27-52
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Handle: RePEc:emx:esteco:v:20:y:2005:i:1:p:27-52

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Web page: http://www.colmex.mx/centros/cee/
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References listed on IDEAS
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  1. Byström, Hans, 2001. "Extreme Value Theory and Extremely Large Electricity Price Changes," Working Papers 2001:19, Lund University, Department of Economics.
  2. Ángel León & Antonio Rubia, 2001. "Comportamiento Del Precio Y Volatilidad En El Pool Eléctrico Español," Working Papers. Serie EC 2001-04, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
  3. De Vany, Arthur S. & Walls, W. David, 1999. "Cointegration analysis of spot electricity prices: insights on transmission efficiency in the western US," Energy Economics, Elsevier, vol. 21(5), pages 435-448, October. [Downloadable!] (restricted)
  4. Kim, Chang-Jin, 1994. "Dynamic linear models with Markov-switching," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 1-22. [Downloadable!] (restricted)
  5. S. James Press, 1967. "A Compound Events Model for Security Prices," Journal of Business, University of Chicago Press, vol. 40, pages 317. [Downloadable!]
  6. Knittel, Christopher R. & Roberts, Michael R., 2005. "An empirical examination of restructured electricity prices," Energy Economics, Elsevier, vol. 27(5), pages 791-817, September. [Downloadable!] (restricted)
  7. Ball, Clifford A & Torous, Walter N, 1985. " On Jumps in Common Stock Prices and Their Impact on Call Option Pricing," Journal of Finance, American Finance Association, vol. 40(1), pages 155-73, March. [Downloadable!] (restricted)
  8. Huisman, Ronald & Mahieu, Ronald, 2003. "Regime jumps in electricity prices," Energy Economics, Elsevier, vol. 25(5), pages 425-434, September. [Downloadable!] (restricted)
    Other versions:
    • Huisman, R. & Mahieu, R.J., 2001. "Regime Jumps in Electricity Prices," Research Paper ERS-2001-48-F&A Revision_, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]
  9. Álvaro Escribano & Juan Ignacio Peña & Pablo Villaplana, 2002. "Modeling Electricity Prices: International Evidence," Economics Working Papers we022708, Universidad Carlos III, Departamento de Economía. [Downloadable!]
  10. Julio Lucia & Eduardo Schwartz, 2000. "Electricity prices and power derivatives: Evidence from the Nordic Power Exchange," University of California at Los Angeles, Anderson Graduate School of Management 1061, Anderson Graduate School of Management, UCLA. [Downloadable!]
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