An empirical comparison of alternate regime-switching models or electricity spot prices
AbstractOne of the most profound features of electricity spot prices are the price spikes. Markov regime-switching (MRS) models seem to be a natural candidate for modeling this spiky behavior. However, in the studies published so far, the goodness-of-fit of the proposed models has not been a major focus. While most of the models were elegant, their fit to empirical data has either been not examined thoroughly or the signs of a bad fit ignored. With this paper we want to fill the gap. We calibrate and test a range of MRS models in an attempt to find parsimonious specifications that not only address the main characteristics of electricity prices but are statistically sound as well. We find that the most universal and robust structure is that of an independent spike 3-regime model with heteroscedastic diffusion-type base regime dynamics and shifted spike regime distributions.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 20546.
Date of creation: 06 Feb 2010
Date of revision:
Electricity spot price; Spikes; Markov regime-switching; Heteroscedasticity;
Other versions of this item:
- Janczura, Joanna & Weron, Rafal, 2010. "An empirical comparison of alternate regime-switching models for electricity spot prices," Energy Economics, Elsevier, vol. 32(5), pages 1059-1073, September.
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting
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