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Entropy of the Nordic electricity market: anomalous scaling, spikes, and mean-reversion

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Author Info
Josep Perello
Miquel Montero
Luigi Palatella
Ingve Simonsen
Jaume Masoliver

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Abstract

The electricity market is a very peculiar market due to the large variety of phenomena that can affect the spot price. However, this market still shows many typical features of other speculative (commodity) markets like, for instance, data clustering and mean reversion. We apply the diffusion entropy analysis (DEA) to the Nordic spot electricity market (Nord Pool). We study the waiting time statistics between consecutive spot price spikes and find it to show anomalous scaling characterized by a decaying power-law. The exponent observed in data follows a quite robust relationship with the one implied by the DEA analysis. We also in terms of the DEA revisit topics like clustering, mean-reversion and periodicities. We finally propose a GARCH inspired model but for the price itself. Models in the context of stochastic volatility processes appear under this scope to have a feasible description.

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File URL: http://arxiv.org/abs/physics/0609066
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Publisher Info
Paper provided by arXiv.org in its series Quantitative Finance Papers with number physics/0609066.

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Date of creation: Sep 2006
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Publication status: Published in Journal of Statistical Mechanics: Theory and Experiment (2006) P11011
Handle: RePEc:arx:papers:physics/0609066

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  1. Rafal Weron & Ingve Simonsen & Piotr Wilman, 2003. "Modeling highly volatile and seasonal markets: evidence from the Nord Pool electricity market," Econometrics 0303007, EconWPA. [Downloadable!]
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