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Multi-Factor Jump-Diffusion Models Of Electricity Prices



    (Center of Mathematics for Applications, University of Oslo, P. O. Box 1053, Blindern, Norway)



    (Laboratoire de Probabilités et Modèles Aléatoires, 13 Université Paris-Diderot (Paris 7), Case 7012, 2 Place Jussieu, 75251 Paris Cedex 05, France)

The recent deregulation of electricity markets has led to the creation of energy exchanges, where the electricity is freely traded. In this paper, we study the most salient statistical features of electricity prices with a particular attention to the European energy exchanges. These features can be adequately reproduced by the sum-OU model: a model representing the price as a sum of Lévy-driven Ornstein–Uhlenbeck (OU) processes. We present a new method for filtering out the different OU components and develop a statistical procedure for estimating the sum-OU model from data.

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Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.

Volume (Year): 11 (2008)
Issue (Month): 05 ()
Pages: 503-528

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Handle: RePEc:wsi:ijtafx:v:11:y:2008:i:05:p:503-528
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