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Modelling electricity day–ahead prices by multivariate Lévy semistationary processes

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Author Info

  • Almut E. D. Veraart

    ()
    (Imperial College London and CREATES)

  • Luitgard A. M. Veraart

    ()
    (London School of Economics)

Abstract

This paper presents a new modelling framework for day–ahead electricity prices based on multivariate Lévy semistationary (MLSS) processes. Day–ahead prices specify the prices for electricity delivered over certain time windows on the next day and are determined in a daily auction. Since there are several delivery periods per day, we use a multivariate model to describe the different day–ahead prices for the different delivery periods on the next day. We extend the work by Barndorff-Nielsen et al. (2010) on univariate Lévy semistationary processes to a multivariate setting and discuss the probabilistic properties of the new class of stochastic processes. Furthermore, we provide a detailed empirical study using data from the European Energy Exchange (EEX) and give new insights into the intra–daily correlation structure of electricity day–ahead prices in the EEX market. The flexible structure of MLSS processes is able to reproduce the stylized facts of such data rather well. Furthermore, these processes can be used to model negative prices in electricity markets which started to occur recently and cannot be described by many classical models.

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File URL: ftp://ftp.econ.au.dk/creates/rp/12/rp12_13.pdf
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Bibliographic Info

Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2012-13.

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Length: 34
Date of creation: 30 Mar 2012
Date of revision:
Handle: RePEc:aah:create:2012-13

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Web page: http://www.econ.au.dk/afn/

Related research

Keywords: Electricity market; day–ahead prices; multivariate Lévy semistationary process; stochastic volatility; correlation; panel structure.;

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  1. Schneider, Stefan & Schneider, Stefan, 2010. "Power Spot Price Models with negative Prices," MPRA Paper 29958, University Library of Munich, Germany.
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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. Almut E. D. Veraart & Luitgard A. M. Veraart, 2013. "Risk premia in energy markets," CREATES Research Papers 2013-02, School of Economics and Management, University of Aarhus.
  3. Asger Lunde & Kasper V. Olesen, 2013. "Modeling and Forecasting the Volatility of Energy Forward Returns - Evidence from the Nordic Power Exchange," CREATES Research Papers 2013-19, School of Economics and Management, University of Aarhus.
  4. Ole E. Barndorff-Nielsen & Fred Espen Benth & Almut E. D. Veraart, 2013. "Modelling energy spot prices by volatility modulated L\'{e}vy-driven Volterra processes," Papers 1307.6332, arXiv.org.

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