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

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  • Sandro Sapio

Abstract

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.

Suggested Citation

  • Sandro Sapio, 2009. "Modelling the distribution of day-ahead electricity returns: a comparison," LEM Papers Series 2009/21, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    • Handle: RePEc:ssa:lemwps:2009/21
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    Electricity prices; alpha-stable; Normal Inverse Gaussian; Exponential Power; Asymmetric Exponential Power; goodness-of-fit;
    All these keywords.

    JEL classification:

    • C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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