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Modelling the distribution of day-ahead electricity returns: a comparison

  • Sandro Sapio

This paper contributes to characterizing the probability density of the price returns in some European day-ahead electricity markets (NordPool, APX, Powernext) by fitting some flexible and general families of distributions, such as the alpha-stable, Normal Inverse Gaussian (NIG), Exponential Power (EP), and Asymmetric Exponential Power (AEP), and comparing their goodness of fit. The alpha-stable and the NIG systematically outperform the EP and AEP models, but the tail behaviours and the skewness are sensitive to the definition of returns and to the deseasonalization methods. In particular, the logarithmic transform and volatility rescaling tend to dampen the extreme returns.

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Paper provided by Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy in its series LEM Papers Series with number 2009/21.

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Date of creation: 18 Dec 2009
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Handle: RePEc:ssa:lemwps:2009/21
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  1. Bruno Bosco & Lucia Parisio & Matteo Pelagatti, 2007. "Deregulated Wholesale Electricity Prices in Italy: An Empirical Analysis," International Advances in Economic Research, International Atlantic Economic Society, vol. 13(4), pages 415-432, November.
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  6. Giulio Bottazzi & Angelo Secchi, 2006. "Maximum Likelihood Estimation of the Symmetric and Asymmetric Exponential Power Distribution," LEM Papers Series 2006/19, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  7. Dongfeng Fu & Fabio Pammolli & S. V. Buldyrev & Massimo Riccaboni & Kaushik Matia & Kazuko Yamasaki & H. E. Stanley, 2005. "The Growth of Business Firms: Theoretical Framework and Empirical Evidence," Papers physics/0512005, arXiv.org.
  8. Sandro Sapio, 2004. "Markets Design, Bidding Rules, and Long Memory in Electricity Prices," Revue d'Économie Industrielle, Programme National Persée, vol. 107(1), pages 151-170.
  9. Mount, Timothy D. & Ning, Yumei & Cai, Xiaobin, 2006. "Predicting price spikes in electricity markets using a regime-switching model with time-varying parameters," Energy Economics, Elsevier, vol. 28(1), pages 62-80, January.
  10. Simonsen, Ingve, 2005. "Volatility of power markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 355(1), pages 10-20.
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  12. Rafal Weron & Michael Bierbrauer & Stefan Trück, 2003. "Modeling electricity prices: jump diffusion and regime switching," HSC Research Reports HSC/03/01, Hugo Steinhaus Center, Wroclaw University of Technology.
  13. Byström, Hans, 2001. "Extreme Value Theory and Extremely Large Electricity Price Changes," Working Papers 2001:19, Lund University, Department of Economics.
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  15. Szymon Borak & Wolfgang Härdle & Rafal Weron, 2005. "Stable Distributions," SFB 649 Discussion Papers SFB649DP2005-008, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
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  18. repec:ner:tilbur:urn:nbn:nl:ui:12-3131736 is not listed on IDEAS
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  23. Bottazzi, Giulio & Secchi, Angelo, 2003. "Why are distributions of firm growth rates tent-shaped?," Economics Letters, Elsevier, vol. 80(3), pages 415-420, September.
  24. Rafal Weron, 2005. "Heavy tails and electricity prices," HSC Research Reports HSC/05/02, Hugo Steinhaus Center, Wroclaw University of Technology.
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