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A two-factor model for electricity prices with dynamic volatility

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  • Schlüter, Stephan
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    Abstract

    The wavelet transform is used to identify a biannual and an annual seasonality in the Phelix Day Peak and to separate the long-term trend from its short-term motion. The short-term/long-term model for commodity prices of Schwartz & Smith (2000) is applied but generalised to account for weekly periodicities and time-varying volatility. Eventually we find a bivariate SARMA-CCC-GARCH model to fit best. Moreover it surpasses the goodness of fit of an univariate GARCH model, which shows that the additional effort of dealing with a two-factor model is worthwile. --

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    Bibliographic Info

    Paper provided by Friedrich-Alexander-Universität Erlangen-Nürnberg, Institut für Wirtschaftspolitik und Quantitative Wirtschaftsforschung (IWQW) in its series IWQW Discussion Paper Series with number 04/2009.

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    Date of creation: 2009
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    Handle: RePEc:zbw:iwqwdp:042009

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    Web page: http://www.iwqw.rw.uni-erlangen.de/
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    Related research

    Keywords: Wavelets; Seasonal Filter; Relative Wavelet Energy; Multivariate GARCH; Energy Price Modelling;

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