Joint Econometric Modeling of Spot Electricity Prices, Forwards and Options
AbstractWe propose a joint modeling of spot electricity prices , forwards prices and other derivative prices, using recent developments in discrete time asset pricing methods based on the notions of stochastic discount factor and of Compound Autoregressive (or affine) stochastic processes. We show that this approach provides quasi explicit formulae for forward and option prices, while allowing for a large flexilbility in the modeling of dynamics, spikes and seasonality, both in the historical and the risk neutral worlds. We also propose a variety of inference techniques involving inversion methods, the Kalman Filter and the Kitagawa-Hamilton filter. Finally, examples using simulations of spot and forward prices illustrate the large potentialities of our modeling
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Bibliographic InfoPaper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2011-12.
Date of creation: Mar 2011
Date of revision:
Electricity derivative pricing; spikes; Car processes; stochastic discount factor; Kitagawa-Hamilton filter;
Other versions of this item:
- Alain Monfort & Olivier Féron, 2012. "Joint econometric modeling of spot electricity prices, forwards and options," Review of Derivatives Research, Springer, vol. 15(3), pages 217-256, October.
- Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
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