IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

A long-term/short-term model for daily electricity prices with dynamic volatility

  • Schlueter, Stephan
Registered author(s):

    In this paper we introduce a new stochastic long-term/short-term model for short-term electricity prices, and apply it to four major European indices, namely to the German, Dutch, UK and Nordic one. We give evidence that all time series contain certain periodic (mostly annual) patterns, and show how to use the wavelet transform, a tool of multiresolution analysis, for filtering purpose. The wavelet transform is also applied to separate the long-term trend from the short-term oscillation in the seasonal-adjusted log-prices. In all time series we find evidence for dynamic volatility, which we incorporate by using a bivariate GARCH model with constant correlation. Eventually we fit various models from the existing literature to the data, and come to the conclusion that our approach performs best. For the error distribution, the Normal Inverse Gaussian distribution shows the best fit.

    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://www.sciencedirect.com/science/article/B6V7G-50DYH4K-2/2/56b00aa2ce6b7a6d9d5db8b7dd9ebc3d
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Elsevier in its journal Energy Economics.

    Volume (Year): 32 (2010)
    Issue (Month): 5 (September)
    Pages: 1074-1081

    as
    in new window

    Handle: RePEc:eee:eneeco:v:32:y:2010:i:5:p:1074-1081
    Contact details of provider: Web page: http://www.elsevier.com/locate/eneco

    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. Weron, Rafal & Misiorek, Adam, 2008. "Forecasting spot electricity prices: A comparison of parametric and semiparametric time series models," MPRA Paper 10428, University Library of Munich, Germany.
    2. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
    3. Weidlich, Anke & Veit, Daniel, 2008. "A critical survey of agent-based wholesale electricity market models," Energy Economics, Elsevier, vol. 30(4), pages 1728-1759, July.
    4. Rafal Weron & Michael Bierbrauer & Stefan Trück, 2003. "Modeling electricity prices: jump diffusion and regime switching," HSC Research Reports HSC/03/01, Hugo Steinhaus Center, Wroclaw University of Technology.
    5. Serletis Apostolos & Shahmoradi Akbar, 2006. "Measuring and Testing Natural Gas and Electricity Markets Volatility: Evidence from Alberta's Deregulated Markets," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 10(3), pages 1-20, September.
    6. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    7. Alvaro Cartea & Marcelo Figueroa, 2005. "Pricing in Electricity Markets: A Mean Reverting Jump Diffusion Model with Seasonality," Applied Mathematical Finance, Taylor & Francis Journals, vol. 12(4), pages 313-335.
    8. Makridakis, Spyros, 1993. "Accuracy measures: theoretical and practical concerns," International Journal of Forecasting, Elsevier, vol. 9(4), pages 527-529, December.
    9. M. T. Barlow, 2002. "A Diffusion Model For Electricity Prices," Mathematical Finance, Wiley Blackwell, vol. 12(4), pages 287-298.
    10. Eduardo Schwartz & James E. Smith, 2000. "Short-Term Variations and Long-Term Dynamics in Commodity Prices," Management Science, INFORMS, vol. 46(7), pages 893-911, July.
    Full references (including those not matched with items on IDEAS)

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

    When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:32:y:2010:i:5:p:1074-1081. 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: (Zhang, Lei)

    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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.