Advanced Search
MyIDEAS: Login to save this paper or follow this series

Multivariate Volatility Modeling of Electricity Futures

Contents:

Author Info

  • Luc Bauwens
  • Christian M. Hafner
  • Diane Pierret

Abstract

We model the dynamic volatility and correlation structure of electricity futures of the European Energy Exchange index. We use a new multiplicative dynamic conditional correlation (mDCC) model to separate long-run from short-run components. We allow for smooth changes in the unconditional volatilities and correlations through a multiplicative component that we estimate nonparametrically. For the short-run dynamics, we use a GJR-GARCH model for the conditional variances and augmented DCC models for the conditional correlations. We also introduce exogenous variables to account for congestion and delivery-date effects in short-term conditional variances. We find different correlation dynamics for long and short-term contracts and the new model achieves higher forecasting performance compared to a standard DCC model.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2011-063.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2011-063.

as in new window
Length: 28 pages
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2011-063

Contact details of provider:
Postal: Spandauer Str. 1,10178 Berlin
Phone: +49-30-2093-5708
Fax: +49-30-2093-5617
Email:
Web page: http://sfb649.wiwi.hu-berlin.de
More information through EDIRC

Related research

Keywords: electricity futures; dynamic conditional correlations; forecasting; multiplicative component;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
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.:
as in new window
  1. Annastiina Silvennoinen & Timo Teräsvirta, 2008. "Multivariate GARCH models," CREATES Research Papers 2008-06, School of Economics and Management, University of Aarhus.
  2. Alastair R. Beresford & Dorothea Kübler & Sören Preibusch, 2011. "Unwillingness to Pay for Privacy: A Field Experiment," SFB 649 Discussion Papers SFB649DP2011-010, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  3. Juliane Scheffel, 2011. "How do Unusual Working Schedules Affect Social Life?," SFB 649 Discussion Papers SFB649DP2011-025, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  4. Christian M. Hafner & Oliver Linton, 2009. "Efficient Estimation of a Multivariate Multiplicative Volatility Model," STICERD - Econometrics Paper Series, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE /2009/541, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  5. Wolfgang Karl Härdle & Brenda López Cabrera & Ostap Okhrin & Weining Wang, 2011. "Localising temperature risk," SFB 649 Discussion Papers SFB649DP2011-001, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  6. Fiocco, Raffaele & Gilli, Mario, 2014. "Bargaining and collusion in a regulatory relationship," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 466, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  7. Lu Lin & Feng Li & Lixing Zhu & Wolfgang Karl Härdle, 2011. "Mean Volatility Regressions," SFB 649 Discussion Papers SFB649DP2011-003, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  8. Wolfgang Karl Härdle & Vladimir Spokoiny & Weining Wang, 2011. "Local Quantile Regression," SFB 649 Discussion Papers SFB649DP2011-005, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  9. BAUWENS, Luc & STORTI, Giuseppe, 2007. "A component GARCH model with time varying weights," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2007019, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Strohsal, Till & Weber, Enzo, 2010. "Mean-Variance Cointegration and the Expectations Hypothesis," University of Regensburg Working Papers in Business, Economics and Management Information Systems 442, University of Regensburg, Department of Economics.
  11. Niels Haldrup & Morten O. Nielsen, 2004. "A Regime Switching Long Memory Model for Electricity Prices," Economics Working Papers, School of Economics and Management, University of Aarhus 2004-2, School of Economics and Management, University of Aarhus.
  12. Rong Liu & Lijian Yang & Wolfgang Karl Härdle, 2011. "Oracally Efficient Two-Step Estimation of Generalized Additive Model," SFB 649 Discussion Papers SFB649DP2011-016, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  13. Anand, Kartik & Gai, Prasanna & Kapadia, Sujit & Brennan, Simon & Willison, Matthew, 2012. "A network model of financial system resilience," Bank of England working papers 458, Bank of England.
  14. Knittel, Christopher R. & Roberts, Michael R., 2005. "An empirical examination of restructured electricity prices," Energy Economics, Elsevier, Elsevier, vol. 27(5), pages 791-817, September.
  15. Felix Naujokat & Ulrich Horst, 2011. "When to Cross the Spread: Curve Following with Singular Control," SFB 649 Discussion Papers SFB649DP2011-053, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  16. Gunda-Alexandra Detmers & Dieter Nautz, 2012. "The Information Content of Central Bank Interest Rate Projections: Evidence from New Zealand," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 88(282), pages 323-329, 09.
  17. Juliane Scheffel, 2011. "Identifying the Effect of Temporal Work Flexibility on Parental Time with Children," SFB 649 Discussion Papers SFB649DP2011-024, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  18. Sigbert Klinke, 2011. "Developing web-based tools for the teaching of statistics: Our Wikis and the German Wikipedia," SFB 649 Discussion Papers SFB649DP2011-030, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  19. Sébastien Laurent & Luc Bauwens & Jeroen V. K. Rombouts, 2006. "Multivariate GARCH models: a survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 21(1), pages 79-109.
  20. Rodrigo Herrera & Bernhard Schipp, 2011. "Extreme value models in a conditional duration intensity framework," SFB 649 Discussion Papers SFB649DP2011-022, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  21. Stephan Stahlschmidt & Helmut Tausendteufel & Wolfgang K. Härdle, 2011. "Bayesian Networks and Sex-related Homicides," SFB 649 Discussion Papers SFB649DP2011-045, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  22. BAUWENS, Luc & HAFNER, Christian & LAURENT, Sébastien, 2011. "Volatility models," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2011058, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  23. Markus Haas, 2004. "A New Approach to Markov-Switching GARCH Models," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 2(4), pages 493-530.
  24. Esra Akdeniz Duran & Wolfgang Karl Härdle & Maria Osipenko, 2011. "Difference based Ridge and Liu type Estimators in Semiparametric Regression Models," SFB 649 Discussion Papers SFB649DP2011-014, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  25. Michael C. Burda & Jennifer Hunt, 2011. "What Explains the German Labor Market Miracle in the Great Recession?," NBER Working Papers 17187, National Bureau of Economic Research, Inc.
  26. Billio, Monica & Caporin, Massimiliano, 2009. "A generalized Dynamic Conditional Correlation model for portfolio risk evaluation," Mathematics and Computers in Simulation (MATCOM), Elsevier, Elsevier, vol. 79(8), pages 2566-2578.
  27. Nikolaus Hautsch & Ruihong Huang, 2011. "Limit Order Flow, Market Impact and Optimal Order Sizes: Evidence from NASDAQ TotalView-ITCH Data," SFB 649 Discussion Papers SFB649DP2011-056, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  28. Christian Hafner & Philip Hans Franses, 2009. "A Generalized Dynamic Conditional Correlation Model: Simulation and Application to Many Assets," Econometric Reviews, Taylor & Francis Journals, Taylor & Francis Journals, vol. 28(6), pages 612-631.
  29. Esra Akdeniz Duran & Mengmeng Guo & Wolfgang Karl Härdle, 2011. "A Confidence Corridor for Expectile Functions," SFB 649 Discussion Papers SFB649DP2011-004, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  30. Mechtenberg, Lydia & Münster, Johannes, 2012. "A strategic mediator who is biased in the same direction as the expert can improve information transmission," Economics Letters, Elsevier, Elsevier, vol. 117(2), pages 490-492.
  31. Lorenzo Cappiello & Robert F. Engle & Kevin Sheppard, 2006. "Asymmetric Dynamics in the Correlations of Global Equity and Bond Returns," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(4), pages 537-572.
  32. Wolfgang Karl Härdle & Maria Osipenko, 2011. "Spatial Risk Premium on Weather Derivatives and Hedging Weather Exposure in Electricity," SFB 649 Discussion Papers SFB649DP2011-013, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  33. Winfried Pohlmeier & Luc Bauwens & David Veredas, 2007. "High frequency financial econometrics. Recent developments," ULB Institutional Repository 2013/136223, ULB -- Universite Libre de Bruxelles.
  34. Annastiina Silvennoinen & Timo Teräsvirta, 2012. "Modelling conditional correlations of asset returns: A smooth transition approach," CREATES Research Papers 2012-09, School of Economics and Management, University of Aarhus.
  35. Robert F. Engle & Jose Gonzalo Rangel, 2008. "The Spline-GARCH Model for Low-Frequency Volatility and Its Global Macroeconomic Causes," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 21(3), pages 1187-1222, May.
  36. Anand, Kartik & Gai, Prasanna & Marsili, Matteo, 2012. "Rollover risk, network structure and systemic financial crises," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 36(8), pages 1088-1100.
  37. Robert F. Engle & Kevin Sheppard, 2001. "Theoretical and Empirical properties of Dynamic Conditional Correlation Multivariate GARCH," NBER Working Papers 8554, National Bureau of Economic Research, Inc.
  38. Heike Belitz & Marius Clemens & Christian von Hirschhausen & Jens Schmidt-Ehmcke & Axel Werwatz & Petra Zloczysti, 2011. "An Indicator for National Systems of Innovation: Methodology and Application to 17 Industrialized Countries," Discussion Papers of DIW Berlin 1129, DIW Berlin, German Institute for Economic Research.
  39. Alexander Meyer-Gohde, 2011. "Monetary Policy, Determinacy, and the Natural Rate Hypothesis," SFB 649 Discussion Papers SFB649DP2011-049, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  40. José Gonzalo Rangel & Robert F. Engle, 2011. "The Factor--Spline--GARCH Model for High and Low Frequency Correlations," Journal of Business & Economic Statistics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 30(1), pages 109-124, May.
  41. repec:ulb:ulbeco:2013/6500 is not listed on IDEAS
  42. Belleflamme,Paul & Peitz,Martin, 2010. "Industrial Organization," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521681599.
  43. Markus Haas, 2004. "Mixed Normal Conditional Heteroskedasticity," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 2(2), pages 211-250.
  44. Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 20(3), pages 339-50, July.
  45. Denis Pelletier, 2004. "Regime Switching for Dynamic Correlations," Econometric Society 2004 North American Summer Meetings, Econometric Society 230, Econometric Society.
  46. Santiago Moreno-Bromberg & Luca Taschini, 2011. "Pollution permits, Strategic Trading and Dynamic Technology Adoption," Papers 1103.2914, arXiv.org.
  47. Haldrup; Niels & Morten Oerregaard Nielsen, 2005. "Directional Congestion and Regime Switching in a Long Memory Model for Electricity Prices," Economics Working Papers, School of Economics and Management, University of Aarhus 2005-18, School of Economics and Management, University of Aarhus.
  48. Colacito, Riccardo & Engle, Robert F. & Ghysels, Eric, 2011. "A component model for dynamic correlations," Journal of Econometrics, Elsevier, Elsevier, vol. 164(1), pages 45-59, September.
  49. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 11(01), pages 122-150, February.
  50. Dirk Hofmann & Salmai Qari, 2011. "The Law of Attraction: Bilateral Search and Horizontal Heterogeneity," SFB 649 Discussion Papers SFB649DP2011-017, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  51. Shuzhuan Zheng & Lijian Yang & Wolfgang Karl Härdle, 2011. "A Confidence Corridor for Sparse Longitudinal Data Curves," SFB 649 Discussion Papers SFB649DP2011-002, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  52. Santiago Moreno-Bromberg & Luca Taschini, 2011. "Pollution Permits, Strategic Trading and Dynamic Technology Adoption," CESifo Working Paper Series 3399, CESifo Group Munich.
  53. Xiaoliang Liu & Wei Xu & Martin Odening, 2011. "Can crop yield risk be globally diversified?," SFB 649 Discussion Papers SFB649DP2011-018, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  54. Hautsch, Nikolaus & Kyj, Lada M. & Malec, Peter, 2011. "The merit of high-frequency data in portfolio allocation," CFS Working Paper Series 2011/24, Center for Financial Studies (CFS).
  55. Fiocco, Raffaele & Scarpa, Carlo, 2014. "The regulation of markets with interdependent demands," Information Economics and Policy, Elsevier, Elsevier, vol. 27(C), pages 1-12.
  56. Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993. " On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks," Journal of Finance, American Finance Association, American Finance Association, vol. 48(5), pages 1779-1801, December.
  57. Bruno Bosco & Lucia Parisio & Matteo Pelagatti & Fabio Baldi, 2010. "Long-run relations in european electricity prices," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 25(5), pages 805-832.
  58. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, Econometric Society, vol. 59(6), pages 1551-80, November.
  59. Alexander Meyer-Gohde, 2011. "Sticky Information and Determinacy," SFB 649 Discussion Papers SFB649DP2011-006, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Diaa Noureldin & Neil Shephard & Kevin Sheppard, 2012. "Multivariate Rotated ARCH Models," Economics Papers 2012-W01, Economics Group, Nuffield College, University of Oxford.
  2. Diego Fresoli & Esther Ruiz, 2014. "The uncertainty of conditional returns, volatilities and correlations in DCC models," Statistics and Econometrics Working Papers, Universidad Carlos III, Departamento de Estadística y Econometría ws140202, Universidad Carlos III, Departamento de Estadística y Econometría.
  3. Noureldin, Diaa & Shephard, Neil & Sheppard, Kevin, 2014. "Multivariate rotated ARCH models," Journal of Econometrics, Elsevier, Elsevier, vol. 179(1), pages 16-30.
  4. Proietti, Tommaso, 2014. "Exponential Smoothing, Long Memory and Volatility Prediction," MPRA Paper 57230, University Library of Munich, Germany.
  5. Palzer, Andreas & Westner, Günther & Madlener, Reinhard, 2013. "Evaluation of different hedging strategies for commodity price risks of industrial cogeneration plants," Energy Policy, Elsevier, Elsevier, vol. 59(C), pages 143-160.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hum:wpaper:sfb649dp2011-063. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RDC-Team).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.