An hour-ahead prediction model for heavy-tailed spot prices
We propose an hour-ahead prediction model for electricity prices that capture the heavy tailed behavior that we observe in the hourly spot market in the Ercot (Texas) and the PJM West hub grids. We present a model according to which we separate the price process into a thin-tailed trailing median process and a heavy-tailed residual process whose probability distribution can be approximated by a Cauchy distribution. We show empirical evidence that supports our model.
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.
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.
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.:
- Taleb, Nassim Nicholas, 2009. "Errors, robustness, and the fourth quadrant," International Journal of Forecasting, Elsevier, vol. 25(4), pages 744-759, October.
- Huisman, Ronald & Mahieu, Ronald, 2003.
"Regime jumps in electricity prices,"
Elsevier, vol. 25(5), pages 425-434, September.
- Huisman, R. & Mahieu, R.J., 2001. "Regime Jumps in Electricity Prices," ERIM Report Series Research in Management ERS-2001-48-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
- Danielsson, J. & de Haan, L. & Peng, L. & de Vries, C. G., 2001.
"Using a Bootstrap Method to Choose the Sample Fraction in Tail Index Estimation,"
Journal of Multivariate Analysis,
Elsevier, vol. 76(2), pages 226-248, February.
- J. Danielsson & L. de Haan & L. Peng & C.G. de Vries, 1997. "Using a Bootstrap Method to choose the Sample Fraction in Tail Index Estimation," Tinbergen Institute Discussion Papers 97-016/4, Tinbergen Institute.
- Daníelsson, J. & de Haan, L.F.M. & Peng, L. & de Vries, C.G., 2000. "Using a bootstrap method to choose the sample fraction in tail index estimation," Econometric Institute Research Papers EI 2000-19/A, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
- 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.
- Alvaro Cartea & Marcelo Gustavo Figueroa, 2005. "Pricing in Electricity Markets: a Mean Reverting Jump Diffusion Model with Seasonality," Birkbeck Working Papers in Economics and Finance 0507, Birkbeck, Department of Economics, Mathematics & Statistics.
- Alvaro Cartea & Marcelo_Gustavo Figueroa, 2005. "Pricing in Electricity Markets: a Mean Reverting Jump Diffusion Model with Seasonality," Finance 0501011, EconWPA, revised 10 Sep 2005.
- R. F. Engle & A. J. Patton, 2001. "What good is a volatility model?," Quantitative Finance, Taylor & Francis Journals, vol. 1(2), pages 237-245.
- Ait-Sahalia, Yacine, 2004. "Disentangling diffusion from jumps," Journal of Financial Economics, Elsevier, vol. 74(3), pages 487-528, December.
- Taleb, Nassim Nicholas, 2007. "Black Swans and the Domains of Statistics," The American Statistician, American Statistical Association, vol. 61, pages 198-200, August.
- W. Breymann & A. Dias & P. Embrechts, 2003. "Dependence structures for multivariate high-frequency data in finance," Quantitative Finance, Taylor & Francis Journals, vol. 3(1), pages 1-14.
- J. Doyne Farmer & Laszlo Gillemot & Fabrizio Lillo & Szabolcs Mike & Anindya Sen, 2004.
"What really causes large price changes?,"
Taylor & Francis Journals, vol. 4(4), pages 383-397.
- Knittel, Christopher R. & Roberts, Michael R., 2005. "An empirical examination of restructured electricity prices," Energy Economics, Elsevier, vol. 27(5), pages 791-817, September.
- Bjørn Eraker, 2004. "Do Stock Prices and Volatility Jump? Reconciling Evidence from Spot and Option Prices," Journal of Finance, American Finance Association, vol. 59(3), pages 1367-1404, 06.
- J. Doyne Farmer & Fabrizio Lillo, 2003. "On the origin of power law tails in price fluctuations," Papers cond-mat/0309416, arXiv.org, revised Jan 2004.
When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:33:y:2011:i:6:p:1252-1266. 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: (Dana Niculescu)
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.