IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Robust estimation and forecasting of the long-term seasonal component of electricity spot prices

  • Nowotarski, Jakub
  • Tomczyk, Jakub
  • Weron, Rafal

When building stochastic models for electricity spot prices the problem of uttermost importance is the estimation and consequent forecasting of a component to deal with trends and seasonality in the data. While the short-term seasonal components (daily, weekly) are more regular and less important for valuation of typical power derivatives, the long-term seasonal components (LTSC; seasonal, annual) are much more difficult to tackle. Surprisingly, in many academic papers dealing with electricity spot price modeling the importance of the seasonal decomposition is neglected and the problem of forecasting it is not considered. With this paper we want to fill the gap and present a thorough study on estimation and forecasting of the LTSC of electricity spot prices. We consider a battery of models based on Fourier or wavelet decomposition combined with linear or exponential decay. We find that all considered wavelet-based models are significantly better in terms of forecasting spot prices up to a year ahead than all considered sine-based models. This result questions the validity and usefulness of stochastic models of spot electricity prices built on sinusoidal long-term seasonal components.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://mpra.ub.uni-muenchen.de/42563/1/MPRA_paper_42563.pdf
File Function: original version
Download Restriction: no

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 42563.

as
in new window

Length:
Date of creation: 11 Nov 2012
Date of revision:
Handle: RePEc:pra:mprapa:42563
Contact details of provider: Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Alvaro Cartea & Marcelo Gustavo Figueroa, 2005. "Pricing in Electricity Markets: a Mean Reverting Jump Diffusion Model with Seasonality," Birkbeck Working Papers in Economics and Finance 0507, Birkbeck, Department of Economics, Mathematics & Statistics.
  2. 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.
  3. Jan Seifert & Marliese Uhrig-Homburg, 2007. "Modelling jumps in electricity prices: theory and empirical evidence," Review of Derivatives Research, Springer, vol. 10(1), pages 59-85, January.
  4. James D. Hamilton, 2009. "Causes and Consequences of the Oil Shock of 2007-08," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(1 (Spring), pages 215-283.
  5. Geman, Hélyette & Roncoroni, Andréa, 2006. "Understanding the Fine Structure of Electricity Prices," Economics Papers from University Paris Dauphine 123456789/1433, Paris Dauphine University.
  6. Rafal Weron, 2006. "Modeling and Forecasting Electricity Loads and Prices: A Statistical Approach," HSC Books, Hugo Steinhaus Center, Wroclaw University of Technology, number hsbook0601.
  7. Schlüter, Stephan & Deuschle, Carola, 2010. "Using wavelets for time series forecasting: Does it pay off?," IWQW Discussion Paper Series 04/2010, Friedrich-Alexander-Universität Erlangen-Nürnberg, Institut für Wirtschaftspolitik und Quantitative Wirtschaftsforschung (IWQW).
  8. Piotr Fryzlewicz & Sébastien van Bellegem & Rainer von Sachs, 2003. "Forecasting non-stationary time series by wavelet process modelling," LSE Research Online Documents on Economics 25830, London School of Economics and Political Science, LSE Library.
  9. Douglas, Stratford & Popova, Julia, 2008. "Storage and the electricity forward premium," Energy Economics, Elsevier, vol. 30(4), pages 1712-1727, July.
  10. Janczura, Joanna & Weron, Rafal, 2010. "An empirical comparison of alternate regime-switching models for electricity spot prices," Energy Economics, Elsevier, vol. 32(5), pages 1059-1073, September.
  11. Bordignon, Silvano & Bunn, Derek W. & Lisi, Francesco & Nan, Fany, 2013. "Combining day-ahead forecasts for British electricity prices," Energy Economics, Elsevier, vol. 35(C), pages 88-103.
  12. Rafał Weron, 2009. "Heavy-tails and regime-switching in electricity prices," Mathematical Methods of Operations Research, Springer, vol. 69(3), pages 457-473, July.
  13. Redl, Christian & Haas, Reinhard & Huber, Claus & Böhm, Bernhard, 2009. "Price formation in electricity forward markets and the relevance of systematic forecast errors," Energy Economics, Elsevier, vol. 31(3), pages 356-364, May.
  14. Weron, R & Bierbrauer, M & Trück, S, 2004. "Modeling electricity prices: jump diffusion and regime switching," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 336(1), pages 39-48.
  15. Erlwein, Christina & Benth, Fred Espen & Mamon, Rogemar, 2010. "HMM filtering and parameter estimation of an electricity spot price model," Energy Economics, Elsevier, vol. 32(5), pages 1034-1043, September.
  16. Fanone, Enzo & Gamba, Andrea & Prokopczuk, Marcel, 2013. "The case of negative day-ahead electricity prices," Energy Economics, Elsevier, vol. 35(C), pages 22-34.
  17. 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.
  18. Kanamura, Takashi & O[combining macron]hashi, Kazuhiko, 2008. "On transition probabilities of regime switching in electricity prices," Energy Economics, Elsevier, vol. 30(3), pages 1158-1172, May.
  19. Huisman, Ronald & Kilic, Mehtap, 2012. "Electricity Futures Prices: Indirect Storability, Expectations, and Risk Premiums," Energy Economics, Elsevier, vol. 34(4), pages 892-898.
  20. Janczura, Joanna & Trück, Stefan & Weron, Rafał & Wolff, Rodney C., 2013. "Identifying spikes and seasonal components in electricity spot price data: A guide to robust modeling," Energy Economics, Elsevier, vol. 38(C), pages 96-110.
  21. Botterud, Audun & Kristiansen, Tarjei & Ilic, Marija D., 2010. "The relationship between spot and futures prices in the Nord Pool electricity market," Energy Economics, Elsevier, vol. 32(5), pages 967-978, September.
  22. repec:spr:compst:v:69:y:2009:i:3:p:457-473 is not listed on IDEAS
  23. Schlueter, Stephan, 2010. "A long-term/short-term model for daily electricity prices with dynamic volatility," Energy Economics, Elsevier, vol. 32(5), pages 1074-1081, September.
  24. Haugom, Erik & Ullrich, Carl J., 2012. "Forecasting spot price volatility using the short-term forward curve," Energy Economics, Elsevier, vol. 34(6), pages 1826-1833.
  25. Gianfreda, Angelica & Grossi, Luigi, 2012. "Forecasting Italian electricity zonal prices with exogenous variables," Energy Economics, Elsevier, vol. 34(6), pages 2228-2239.
  26. Joanna Janczura & Rafal Weron, 2011. "Efficient estimation of Markov regime-switching models: An application to electricity spot prices," HSC Research Reports HSC/11/02, Hugo Steinhaus Center, Wroclaw University of Technology.
  27. Weron, Rafal, 2008. "Market price of risk implied by Asian-style electricity options and futures," Energy Economics, Elsevier, vol. 30(3), pages 1098-1115, May.
  28. Ralf Becker & Stan Hurn & Vlad Pavlov, 2007. "Modelling Spikes in Electricity Prices," The Economic Record, The Economic Society of Australia, vol. 83(263), pages 371-382, December.
  29. Knittel, Christopher R. & Roberts, Michael R., 2005. "An empirical examination of restructured electricity prices," Energy Economics, Elsevier, vol. 27(5), pages 791-817, September.
  30. Stevenson Maxwell J & Moreira do Amaral Luiz Felipe & Peat Maurice, 2006. "Risk Management and the Role of Spot Price Predictions in the Australian Retail Electricity Market," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 10(3), pages 1-25, September.
  31. Niels Haldrup & Frank S. Nielsen & Morten Ørregaard Nielsen, 2009. "A vector autoregressive model for electricity prices subject to long memory and regime switching," Working Papers 1211, Queen's University, Department of Economics.
  32. Trueck, Stefan & Weron, Rafal & Wolff, Rodney, 2007. "Outlier Treatment and Robust Approaches for Modeling Electricity Spot Prices," MPRA Paper 4711, University Library of Munich, Germany.
  33. Piotr Fryzlewicz & Sébastien Bellegem & Rainer Sachs, 2003. "Forecasting non-stationary time series by wavelet process modelling," Annals of the Institute of Statistical Mathematics, Springer, vol. 55(4), pages 737-764, December.
  34. De Jong Cyriel, 2006. "The Nature of Power Spikes: A Regime-Switch Approach," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 10(3), pages 1-28, September.
  35. Szymon Borak & Rafał Weron, 2008. "A semiparametric factor model for electricity forward curve dynamics," SFB 649 Discussion Papers SFB649DP2008-050, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  36. Benth, Fred Espen & Kiesel, Rüdiger & Nazarova, Anna, 2012. "A critical empirical study of three electricity spot price models," Energy Economics, Elsevier, vol. 34(5), pages 1589-1616.
  37. Higgs, Helen & Worthington, Andrew, 2008. "Stochastic price modeling of high volatility, mean-reverting, spike-prone commodities: The Australian wholesale spot electricity market," Energy Economics, Elsevier, vol. 30(6), pages 3172-3185, November.
  38. Rafal Weron & Ingve Simonsen & Piotr Wilman, 2003. "Modeling highly volatile and seasonal markets: evidence from the Nord Pool electricity market," Econometrics 0303007, EconWPA.
  39. Jakub Nowotarski & Jakub Tomczyk & Rafal Weron, 2013. "Modeling and forecasting of the long-term seasonal component of the EEX and Nord Pool spot prices," HSC Research Reports HSC/13/02, Hugo Steinhaus Center, Wroclaw University of Technology.
  40. Keles, Dogan & Genoese, Massimo & Möst, Dominik & Fichtner, Wolf, 2012. "Comparison of extended mean-reversion and time series models for electricity spot price simulation considering negative prices," Energy Economics, Elsevier, vol. 34(4), pages 1012-1032.
  41. Max Stevenson, 2001. "Filtering and Forecasting Spot Electricity Prices in the Increasingly Deregulated Australian Electricity Market," Research Paper Series 63, Quantitative Finance Research Centre, University of Technology, Sydney.
  42. Benz, Eva & Trück, Stefan, 2009. "Modeling the price dynamics of CO2 emission allowances," Energy Economics, Elsevier, vol. 31(1), pages 4-15, January.
  43. H. Wong & Wai-Cheung Ip & Zhongjie Xie & Xueli Lui, 2003. "Modelling and forecasting by wavelets, and the application to exchange rates," Journal of Applied Statistics, Taylor & Francis Journals, vol. 30(5), pages 537-553.
  44. Nomikos, Nikos K. & Soldatos, Orestes A., 2010. "Analysis of model implied volatility for jump diffusion models: Empirical evidence from the Nordpool market," Energy Economics, Elsevier, vol. 32(2), pages 302-312, March.
  45. H�lyette Geman & Andrea Roncoroni, 2006. "Understanding the Fine Structure of Electricity Prices," The Journal of Business, University of Chicago Press, vol. 79(3), pages 1225-1262, May.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:42563. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.