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It never rains but it pours: Modelling the persistence of spikes in electricity prices

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Author Info
T M Christensen () (QUT)
A S Hurn () (QUT)
K A Lindsay (Glasgow)

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Abstract

During periods of market stress, electricity prices can rise dramatically. This paper treats these abnormal episodes or price spikes as count events and attempts to build a model of the spiking process. In contrast to the existing literature, which either ignores temporal dependence in the spiking process or attempts to model the dependence solely in terms of deterministic variables (like seasonal and day of the week effects), this paper argues that persistence in the spiking process is an important factor in building an effective model. A Poisson autoregressive framework is proposed in which price spikes occur as a result of the latent arrival and survival of system stresses. This formulation captures the salient features of the process adequately, and yields forecasts of price spikes that are superior to those obtained from na¨ıve models which do not account for persistence in the spiking process.

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Publisher Info
Paper provided by National Centre for Econometric Research in its series NCER Working Paper Series with number 25.

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Length: 27 pages
Date of creation: 12 Jun 2008
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Handle: RePEc:qut:auncer:2008-14

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Related research
Keywords: Electricity Prices Extreme Events Poisson Regressions Poisson Autoregressive Model

Find related papers by JEL classification:
C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing

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This page was last updated on 2008-10-23.


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