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Entropy of the Nordic electricity market: anomalous scaling, spikes, and mean-reversion

Listed author(s):
  • Josep Perello
  • Miquel Montero
  • Luigi Palatella
  • Ingve Simonsen
  • Jaume Masoliver

The electricity market is a very peculiar market due to the large variety of phenomena that can affect the spot price. However, this market still shows many typical features of other speculative (commodity) markets like, for instance, data clustering and mean reversion. We apply the diffusion entropy analysis (DEA) to the Nordic spot electricity market (Nord Pool). We study the waiting time statistics between consecutive spot price spikes and find it to show anomalous scaling characterized by a decaying power-law. The exponent observed in data follows a quite robust relationship with the one implied by the DEA analysis. We also in terms of the DEA revisit topics like clustering, mean-reversion and periodicities. We finally propose a GARCH inspired model but for the price itself. Models in the context of stochastic volatility processes appear under this scope to have a feasible description.

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File URL: http://arxiv.org/pdf/physics/0609066
File Function: Latest version
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Paper provided by arXiv.org in its series Papers with number physics/0609066.

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Date of creation: Sep 2006
Publication status: Published in Journal of Statistical Mechanics: Theory and Experiment (2006) P11011
Handle: RePEc:arx:papers:physics/0609066
Contact details of provider: Web page: http://arxiv.org/

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  1. Rafal Weron & Ingve Simonsen & Piotr Wilman, 2003. "Modeling highly volatile and seasonal markets: evidence from the Nord Pool electricity market," Econometrics 0303007, EconWPA.
  2. Rafal Weron, 2001. "Measuring long-range dependence in electricity prices," Papers cond-mat/0103621, arXiv.org.
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