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Forecasting the Volatility of Electricity Prices by Robust Estimation: An Application to the Italian Market

In: Mathematical and Statistical Methods for Actuarial Sciences and Finance

Author

Listed:
  • Lisa Crosato

    (University of Milano-Bicocca)

  • Luigi Grossi

    (University of Verona)

  • Fany Nan

    (European Commission, Joint Research Center (JRC))

Abstract

Volatility of electricity prices has been often estimated through GARCH-type models which can be strongly affected by the presence of extreme observations. Although the presence of spikes is a well-known stylized effect observed on electricity markets, robust volatility estimators have not been applied so far. In this paper we try to fill this gap by suggesting a robust procedure to the study of the dynamics of electricity prices. The conditional mean of de-trended and seasonally adjusted prices is modeled through a robust estimator of SETAR processes based on a polynomial weighting function while a robust GARCH is used for the conditional variance. The robust GARCH estimator relies on the extension of the forward search by Crosato and Grossi. The robust SETAR-GARCH model is applied to the Italian day-ahead electricity market using data in the period spanning from 2013 to 2015.

Suggested Citation

  • Lisa Crosato & Luigi Grossi & Fany Nan, 2018. "Forecasting the Volatility of Electricity Prices by Robust Estimation: An Application to the Italian Market," Springer Books, in: Marco Corazza & María Durbán & Aurea Grané & Cira Perna & Marilena Sibillo (ed.), Mathematical and Statistical Methods for Actuarial Sciences and Finance, pages 279-283, Springer.
    • Handle: RePEc:spr:sprchp:978-3-319-89824-7_50
    DOI: 10.1007/978-3-319-89824-7_50
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