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Multi-Factor Jump-Diffusion Models Of Electricity Prices

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Author Info

  • THILO MEYER-BRANDIS

    ()
    (Center of Mathematics for Applications, University of Oslo, P. O. Box 1053, Blindern, Norway)

  • PETER TANKOV

    ()
    (Laboratoire de Probabilités et Modèles Aléatoires, 13 Université Paris-Diderot (Paris 7), Case 7012, 2 Place Jussieu, 75251 Paris Cedex 05, France)

Abstract

The recent deregulation of electricity markets has led to the creation of energy exchanges, where the electricity is freely traded. In this paper, we study the most salient statistical features of electricity prices with a particular attention to the European energy exchanges. These features can be adequately reproduced by the sum-OU model: a model representing the price as a sum of Lévy-driven Ornstein–Uhlenbeck (OU) processes. We present a new method for filtering out the different OU components and develop a statistical procedure for estimating the sum-OU model from data.

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Bibliographic Info

Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.

Volume (Year): 11 (2008)
Issue (Month): 05 ()
Pages: 503-528

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Handle: RePEc:wsi:ijtafx:v:11:y:2008:i:05:p:503-528

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Related research

Keywords: Electricity prices; multi-factor models; Lévy-driven Ornstein–Uhlenbeck type processes; statistical estimation; nonlinear filtering;

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Cited by:
  1. St\'ephane Goutte & Nadia Oudjane & Francesco Russo, 2013. "Variance optimal hedging for continuous time additive processes and applications," Science & Finance (CFM) working paper archive 1302.1965, Science & Finance, Capital Fund Management.
  2. : Enzo Fanone & Andrea Gamba & Marcel Prokopczuk, 2011. "The Case of Negative Day-Ahead Electricity Prices," Working Papers wpn11-01, Warwick Business School, Finance Group.
  3. St\'ephane Goutte & Nadia Oudjane & Francesco Russo, 2009. "Variance Optimal Hedging for continuous time processes with independent increments and applications," Science & Finance (CFM) working paper archive 0912.0372, Science & Finance, Capital Fund Management.
  4. Carmine De Franco & Peter Tankov & Xavier Warin, 2012. "Numerical methods for the quadratic hedging problem in Markov models with jumps," Science & Finance (CFM) working paper archive 1206.5393, Science & Finance, Capital Fund Management, revised Dec 2013.
  5. Benth, Fred Espen & Kiesel, Rüdiger & Nazarova, Anna, 2012. "A critical empirical study of three electricity spot price models," Energy Economics, Elsevier, vol. 34(5), pages 1589-1616.
  6. Rafael Mendoza-Arriaga & Vadim Linetsky, 2014. "Time-changed CIR default intensities with two-sided mean-reverting jumps," Science & Finance (CFM) working paper archive 1403.5402, Science & Finance, Capital Fund Management.

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