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Modeling electricity spot prices using mean-reverting multifractal processes

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  • Martin Rypdal
  • Ola L{o}vsletten

Abstract

We discuss stochastic modeling of volatility persistence and anti-correlations in electricity spot prices, and for this purpose we present two mean-reverting versions of the multifractal random walk (MRW). In the first model the anti-correlations are modeled in the same way as in an Ornstein-Uhlenbeck process, i.e. via a drift (damping) term, and in the second model the anti-correlations are included by letting the innovations in the MRW model be fractional Gaussian noise with H

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  • Martin Rypdal & Ola L{o}vsletten, 2012. "Modeling electricity spot prices using mean-reverting multifractal processes," Papers 1201.6137, arXiv.org.
  • Handle: RePEc:arx:papers:1201.6137
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    File URL: http://arxiv.org/pdf/1201.6137
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    References listed on IDEAS

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    8. Bacry, E. & Kozhemyak, A. & Muzy, Jean-Francois, 2008. "Continuous cascade models for asset returns," Journal of Economic Dynamics and Control, Elsevier, vol. 32(1), pages 156-199, January.
    9. Rafal Weron & Ingve Simonsen & Piotr Wilman, 2003. "Modeling highly volatile and seasonal markets: evidence from the Nord Pool electricity market," Econometrics 0303007, EconWPA.
    10. Malo, Pekka, 2009. "Modeling electricity spot and futures price dependence: A multifrequency approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(22), pages 4763-4779.
    11. Weron, Rafal, 2000. "Energy price risk management," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 285(1), pages 127-134.
    12. Torstein Bye & Einar Hope, 2005. "Deregulation of electricity markets : The Norwegian experience," Discussion Papers 433, Statistics Norway, Research Department.
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