IDEAS home Printed from https://ideas.repec.org/p/ebg/essewp/dr-03004.html
   My bibliography  Save this paper

A Class of Marked Point Processes for Modelling Electricity Prices

Author

Listed:

Abstract

This paper presents a family of processes to model electricity spot prices in deregulated markets. Besides mean-reversion, a property they share with other comodities, power prices exhibit the unique feature of spikes in trajectories. We introduce a class of discontinuous processes exhibiting a « jump-reversion » component to properly represent these sharp upward moves shortly followed by drops of similar magnitude. Our approach allows to capture – for the first time to our knowledge – both the trajectorial and statistical properties of electricity pool prices. The quality of the fitting is illustrated on a database of major US power markets.

Suggested Citation

  • Geman, Hélyette & Roncoroni, Andrea, 2003. "A Class of Marked Point Processes for Modelling Electricity Prices," ESSEC Working Papers DR 03004, ESSEC Research Center, ESSEC Business School.
    • Handle: RePEc:ebg:essewp:dr-03004
    as

    Download full text from publisher

    File URL: http://domservices.essec.fr/domsite/cv.nsf/d4e0d1efbad6231dc1256b28005d59b6/cd1745fcd031a5b5c1256e35002e3f20/$FILE/DR%2003004%20Internet.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. 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, June.
    2. 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.
    3. Torben G. Andersen & Luca Benzoni & Jesper Lund, 2002. "An Empirical Investigation of Continuous‐Time Equity Return Models," Journal of Finance, American Finance Association, vol. 57(3), pages 1239-1284, June.
    4. M. T. Barlow, 2002. "A Diffusion Model For Electricity Prices," Mathematical Finance, Wiley Blackwell, vol. 12(4), pages 287-298, October.
    5. Bryan R. Routledge & Duane J. Seppi & Chester S. Spatt, 2000. "Equilibrium Forward Curves for Commodities," Journal of Finance, American Finance Association, vol. 55(3), pages 1297-1338, June.
    6. Lo, Andrew W., 1988. "Maximum Likelihood Estimation of Generalized Itô Processes with Discretely Sampled Data," Econometric Theory, Cambridge University Press, vol. 4(2), pages 231-247, August.
    7. Robert S. Pindyck, 1999. "The Long-Run Evolutions of Energy Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-27.
    8. Nicholas Kaldor, 1939. "Speculation and Economic Stability," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 7(1), pages 1-27.
    9. Beckers, Stan, 1981. "A Note on Estimating the Parameters of the Diffusion-Jump Model of Stock Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 16(1), pages 127-140, March.
    10. Ball, Clifford A. & Torous, Walter N., 1983. "A Simplified Jump Process for Common Stock Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 18(1), pages 53-65, March.
    11. 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 1517-1545, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rafal Weron, 2005. "Market price of risk implied by Asian-style electricity options," Econometrics 0502003, University Library of Munich, Germany.
    2. Alfredo Trespalacios & Lina M. Cortés & Javier Perote, 2021. "Modeling Electricity Price and Quantity Uncertainty: An Application for Hedging with Forward Contracts," Energies, MDPI, vol. 14(11), pages 1-26, June.
    3. Ona Duarte Venslauskas & John J. Garc�a Rend�n, 2015. "Estimación del precio marginal del sistema eléctrico colombiano: una mirada desde la organización industrial," Revista Ecos de Economía, Universidad EAFIT, vol. 19(41), pages 1-23.
    4. Javier Orlando Pantoja Robayo & Kelly Maradey Angarita & Alfredo Trespalacios Carrasquilla, 2013. "Evaluación de los márgenes requeridos en un mercado de derivados de energía eléctrica," Documentos de Trabajo de Valor Público 11996, Universidad EAFIT.
    5. Falbo, Paolo & Fattore, Marco & Stefani, Silvana, 2010. "A new index for electricity spot markets," Energy Policy, Elsevier, vol. 38(6), pages 2739-2750, June.
    6. Alfredo Trespalacios & Lina M. Cort�s & Javier Perote, 2019. "Modeling the electricity spot price with switching regime semi-nonparametric distributions," Documentos de Trabajo de Valor Público 17618, Universidad EAFIT.
    7. Trespalacios, Alfredo & Cortés, Lina M. & Perote, Javier, 2020. "Uncertainty in electricity markets from a semi-nonparametric approach," Energy Policy, Elsevier, vol. 137(C).
    8. Javier Pantoja-Robayo & Kelly Maradey Angarita & Alfredo Trespalacios Carrasquilla, 2017. "Analysis of the financial margins required to hedge risks in electric power futures markets," Revista Ecos de Economía, Universidad EAFIT, vol. 21(45), pages 68-107.
    9. Islyaev, Suren & Date, Paresh, 2015. "Electricity futures price models: Calibration and forecasting," European Journal of Operational Research, Elsevier, vol. 247(1), pages 144-154.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:dau:papers:123456789/1433 is not listed on IDEAS
    2. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
    3. Acharya, Viral V. & Lochstoer, Lars A. & Ramadorai, Tarun, 2013. "Limits to arbitrage and hedging: Evidence from commodity markets," Journal of Financial Economics, Elsevier, vol. 109(2), pages 441-465.
    4. Alvaro Cartea & Marcelo Figueroa & Helyette Geman, 2009. "Modelling Electricity Prices with Forward Looking Capacity Constraints," Applied Mathematical Finance, Taylor & Francis Journals, vol. 16(2), pages 103-122.
    5. repec:cdl:anderf:qt3mw4q41x is not listed on IDEAS
    6. Nomikos, Nikos K. & Soldatos, Orestes A., 2010. "Modelling short and long-term risks in power markets: Empirical evidence from Nord Pool," Energy Policy, Elsevier, vol. 38(10), pages 5671-5683, October.
    7. Rafal Weron, 2006. "Modeling and Forecasting Electricity Loads and Prices: A Statistical Approach," HSC Books, Hugo Steinhaus Center, Wroclaw University of Science and Technology, number hsbook0601, December.
    8. Bierbrauer, Michael & Menn, Christian & Rachev, Svetlozar T. & Truck, Stefan, 2007. "Spot and derivative pricing in the EEX power market," Journal of Banking & Finance, Elsevier, vol. 31(11), pages 3462-3485, November.
    9. repec:cdl:anderf:qt7mh2m2bt is not listed on IDEAS
    10. Goto, Mika & Karolyi, G. Andrew, 2004. "Understanding Electricity Price Volatility within and across Markets," Working Paper Series 2004-12, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    11. Michel Culot & Valérie Goffin & Steve Lawford & Sébastien de Menten and Yves Smeers, . "Practical stochastic modeling of electricity prices," Journal of Energy Markets, Journal of Energy Markets.
    12. Christensen, Kim & Oomen, Roel C.A. & Podolskij, Mark, 2014. "Fact or friction: Jumps at ultra high frequency," Journal of Financial Economics, Elsevier, vol. 114(3), pages 576-599.
    13. Max F. Schöne & Stefan Spinler, 2017. "A four-factor stochastic volatility model of commodity prices," Review of Derivatives Research, Springer, vol. 20(2), pages 135-165, July.
    14. Haugom, Erik & Ullrich, Carl J., 2012. "Market efficiency and risk premia in short-term forward prices," Energy Economics, Elsevier, vol. 34(6), pages 1931-1941.
    15. repec:wvu:wpaper:06-16 is not listed on IDEAS
    16. Moreno, Manuel & Serrano, Pedro & Stute, Winfried, 2011. "Statistical properties and economic implications of jump-diffusion processes with shot-noise effects," European Journal of Operational Research, Elsevier, vol. 214(3), pages 656-664, November.
    17. repec:vuw:vuwscr:19065 is not listed on IDEAS
    18. repec:dgr:rugsom:98a40 is not listed on IDEAS
    19. Constantino Hevia & Ivan Petrella & Martin Sola, 2018. "Risk premia and seasonality in commodity futures," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 33(6), pages 853-873, September.
    20. Murray Carlson & Zeigham Khokher & Sheridan Titman, 2007. "Equilibrium Exhaustible Resource Price Dynamics," Journal of Finance, American Finance Association, vol. 62(4), pages 1663-1703, August.
    21. Evans, Lewis & Guthrie, Graeme, 2007. "Commodity Price Behavior With Storage Frictions," Working Paper Series 19065, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    22. Markus Burger & Bernhard Klar & Alfred Muller & Gero Schindlmayr, 2004. "A spot market model for pricing derivatives in electricity markets," Quantitative Finance, Taylor & Francis Journals, vol. 4(1), pages 109-122.
    23. Mellios, Constantin & Six, Pierre & Lai, Anh Ngoc, 2016. "Dynamic speculation and hedging in commodity futures markets with a stochastic convenience yield," European Journal of Operational Research, Elsevier, vol. 250(2), pages 493-504.
    24. Radu Tunaru, 2015. "Model Risk in Financial Markets:From Financial Engineering to Risk Management," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 9524.
    25. Liu, Peng (Peter) & Tang, Ke, 2010. "No-arbitrage conditions for storable commodities and the modeling of futures term structures," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1675-1687, July.
    26. Le Pen, Yannick & Sévi, Benoît, 2010. "Volatility transmission and volatility impulse response functions in European electricity forward markets," Energy Economics, Elsevier, vol. 32(4), pages 758-770, July.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebg:essewp:dr-03004. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sophie Magnanou (email available below). General contact details of provider: https://edirc.repec.org/data/essecfr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.