Modelling Electricity Prices with Forward Looking Capacity Constraints
We present a spot price model for wholesale electricity prices which incorporates forward looking information that is available to all market players. We focus on information that measures the extent to which the capacity of the England and Wales generation park will be constrained over the next 52 weeks. We propose a measure of 'tight market conditions', based on capacity constraints, which identifies the weeks of the year when price spikes are more likely to occur. We show that the incorporation of this type of forward looking information, not uncommon in electricity markets, improves the modelling of spikes (timing and magnitude) and the different speeds of mean reversion.
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.
Volume (Year): 16 (2009)
Issue (Month): 2 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RAMF20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RAMF20|
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.:
- Litzenberger, Robert H & Rabinowitz, Nir, 1995. " Backwardation in Oil Futures Markets: Theory and Empirical Evidence," Journal of Finance, American Finance Association, vol. 50(5), pages 1517-45, December.
- Hirshleifer, David, 1988. "Risk, Futures Pricing, and the Organization of Production in Commodity Markets," Journal of Political Economy, University of Chicago Press, vol. 96(6), pages 1206-20, December.
- repec:dau:papers:123456789/1433 is not listed on IDEAS
- 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 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," Finance 0501011, EconWPA, revised 10 Sep 2005.
- Schwartz, Eduardo S, 1997. " The Stochastic Behavior of Commodity Prices: Implications for Valuation and Hedging," Journal of Finance, American Finance Association, vol. 52(3), pages 923-73, July.
- Hendrik Bessembinder & Michael L. Lemmon, 2002. "Equilibrium Pricing and Optimal Hedging in Electricity Forward Markets," Journal of Finance, American Finance Association, vol. 57(3), pages 1347-1382, 06.
- Hélyette Geman & Vu-Nhat Nguyen, 2005. "Soybean Inventory and Forward Curve Dynamics," Management Science, INFORMS, vol. 51(7), pages 1076-1091, July.
- Jaime Casassus & Pierre Collin-Dufresne, 2005. "Stochastic Convenience Yield Implied from Commodity Futures and Interest Rates," Journal of Finance, American Finance Association, vol. 60(5), pages 2283-2331, October.
- Alvaro Escribano & J. Ignacio Peña & Pablo Villaplana, 2011.
"Modelling Electricity Prices: International Evidence,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 73(5), pages 622-650, October.
- Peña Sánchez de Rivera, Juan Ignacio & Escribano, Álvaro & Villaplana, Pablo, 2002. "Modeling electricity prices: international evidence," UC3M Working papers. Economics we022708, Universidad Carlos III de Madrid. Departamento de Economía.
- Bryan Routledge & Duane Seppi & Chester Spatt, .
"Equilibrium Forward Curves for Commodities,"
GSIA Working Papers
1997-50, Carnegie Mellon University, Tepper School of Business.
- H�lyette Geman & Andrea Roncoroni, 2006. "Understanding the Fine Structure of Electricity Prices," The Journal of Business, University of Chicago Press, vol. 79(3), pages 1225-1262, May.
- repec:dau:papers:123456789/1937 is not listed on IDEAS
- Ole E. Barndorff-Nielsen & Neil Shephard, 2001. "Non-Gaussian Ornstein-Uhlenbeck-based models and some of their uses in financial economics," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 63(2), pages 167-241.
- Miltersen, Kristian R. & Schwartz, Eduardo S., 1998. "Pricing of Options on Commodity Futures with Stochastic Term Structures of Convenience Yields and Interest Rates," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(01), pages 33-59, March.
- Fama, Eugene F & French, Kenneth R, 1988. " Business Cycles and the Behavior of Metals Prices," Journal of Finance, American Finance Association, vol. 43(5), pages 1075-93, December.
- Gibson, Rajna & Schwartz, Eduardo S, 1990. " Stochastic Convenience Yield and the Pricing of Oil Contingent Claims," Journal of Finance, American Finance Association, vol. 45(3), pages 959-76, July.
- Hilliard, Jimmy E. & Reis, Jorge, 1998. "Valuation of Commodity Futures and Options under Stochastic Convenience Yields, Interest Rates, and Jump Diffusions in the Spot," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(01), pages 61-86, March.
- Helyette Geman & A. Roncoroni, 2006. "Understanding the Fine Structure of Electricity Prices," Post-Print halshs-00144198, HAL.
When requesting a correction, please mention this item's handle: RePEc:taf:apmtfi:v:16:y:2009:i:2:p:103-122. 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: (Michael McNulty)
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.