Extreme Value Theory and Extremely Large Electricity Price Changes
AbstractNord Pool, the first multinational exchange for electricity trading, has existed since January 1996. Typical characteristics of electricity prices on Nord Pool are a very high volatility and a large number of very large, or extreme, price changes. In this paper we look at hourly spot prices on NordPool and apply extreme value theory to investigate the tails of the price change distribution. We find a good fit of both the generalized extreme value distribution and the generalized Pareto distribution to AR-GARCH filtered price change series, and accurate estimates as well as forecasts of extreme quantiles are produced. Generally, our results suggest extreme value theory to be of interest to both risk managers and portfolio managers in the highly volatile electricity market.
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Bibliographic InfoPaper provided by Lund University, Department of Economics in its series Working Papers with number 2001:19.
Length: 22 pages
Date of creation: 15 Oct 2001
Date of revision:
Publication status: Published in International Review of Economics and Finance, 2005, pages 41-55.
Contact details of provider:
Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/en
More information through EDIRC
electricity prices; conditional extreme value theory; GARCH; tail quantiles;
Other versions of this item:
- Bystrom, Hans N. E., 2005. "Extreme value theory and extremely large electricity price changes," International Review of Economics & Finance, Elsevier, vol. 14(1), pages 41-55.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- G19 - Financial Economics - - General Financial Markets - - - Other
- Q49 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-10-22 (All new papers)
- NEP-ECM-2001-10-22 (Econometrics)
- NEP-IAS-2001-10-22 (Insurance Economics)
- NEP-MIC-2001-10-22 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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