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The k-factor Gegenbauer asymmetric Power GARCH approach for modelling electricity spot price dynamics

  • Abdou Kâ Diongue


    (UFR SAT - Université Gaston Berger de Saint-Louis Sénégal - Université Gaston Berger de Saint-Louis, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS, School of Economics and Finance - Queensland University of Technology)

  • Dominique Guegan


    (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics)

Electricity spot prices exhibit a number of typical features that are not found in most financial time series, such as complex seasonality patterns, persistence (hyperbolic decay of the autocorrelation function), mean reversion, spikes, asymmetric behavior and leptokurtosis. Efforts have been made worldwide to model the behaviour of the electricity's market price. In this paper, we propose a new approach dealing with the stationary k-factor Gegenbauer process with asymmetric Power GARCH noise under conditional Student-t distribution, which can take into account the previous features. We derive the stationary and invertible conditions as well as the δth-order moment of this model that we called GGk-APARCH model. Then we focus on the estimation parameters and provide the analytical from of the likelihood which permits to obtain consitent estimates. In order to characterize the properties of these estimates we perform a Monte Carlo experiment. Finally the previous approach is used to the model electricity spot prices coming from the Leipzig Power Exchange (LPX) in Germany, Powernext in France, Operadora del Mercado Espagñol de Electricidad (OMEL) in Spain and the Pennsylvania-New Jersey-Maryland (PJM) interconnection in United States. In terms of forecasting criteria we obtain very good results comparing with models using hederoscedastic asymmetric errors.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00259225.

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Date of creation: Feb 2008
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Handle: RePEc:hal:cesptp:halshs-00259225
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