A semiparametric factor model for electricity forward curve dynamics
In this paper we introduce the dynamic semiparametric factor model (DSFM) for electricity forward curves. The biggest advantage of our approach is that it not only leads to smooth, seasonal forward curves extracted from exchange traded futures and forward electricity contracts, but also to a parsimonious factor representation of the curve. Using closing prices from the Nordic power market Nord Pool we provide empirical evidence that the DSFM is an efficient tool for approximating forward curve dynamics.
|Date of creation:||Jul 2008|
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Web page: http://sfb649.wiwi.hu-berlin.de
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- Nikolaus Hautsch & Vahidin Jeleskovic, 2008. "Modelling High-Frequency Volatility and Liquidity Using Multiplicative Error Models," SFB 649 Discussion Papers SFB649DP2008-047, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Fleten, Stein-Erik & Lemming, Jacob, 2003. "Constructing forward price curves in electricity markets," Energy Economics, Elsevier, vol. 25(5), pages 409-424, September.
- Rafal Weron, 2006. "Modeling and Forecasting Electricity Loads and Prices: A Statistical Approach," HSC Books, Hugo Steinhaus Center, Wroclaw University of Technology, number hsbook0601.
- Fengler, Matthias R. & Härdle, Wolfgang & Mammen, Enno, 2003. "Implied volatility string dynamics," SFB 373 Discussion Papers 2003,54, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- Park, Byeong U. & Mammen, Enno & HÃ¤rdle, Wolfgang & Borak, Szymon, 2009.
"Time Series Modelling With Semiparametric Factor Dynamics,"
Journal of the American Statistical Association,
American Statistical Association, vol. 104(485), pages 284-298.
- Szymon Borak & Wolfgang Härdle & Enno Mammen & Byeong U. Park, 2007. "Time Series Modelling with Semiparametric Factor Dynamics," SFB 649 Discussion Papers SFB649DP2007-023, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Patrick Hagan & Graeme West, 2006. "Interpolation Methods for Curve Construction," Applied Mathematical Finance, Taylor & Francis Journals, vol. 13(2), pages 89-129.
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