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Spot-forward Model for Electricity Prices

Listed author(s):
  • Stein-Erik, Fleten
  • Paraschiv, Florentina


  • Schürle, Michel


We propose a novel regime-switching approach for the simulation of electricity spot prices that is inspired by the class of fundamental models and takes into account the relation between spot and forward prices. Additionally the model is able to reproduce spikes and negative prices. Market prices are derived given an observed forward curve. We distinguish between a base regime and an upper as well as a lower spike regime. The model parameters are calibrated using historical hourly price forward curves for EEX Phelix and the dynamic of hourly spot prices. We further evaluate different time series models such as ARMA and GARCH that are usually applied for modeling electricity prices and conclude a better performance of the proposed regime-switching model.

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Paper provided by University of St. Gallen, School of Finance in its series Working Papers on Finance with number 1311.

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Length: 31 pages
Date of creation: Jul 2013
Handle: RePEc:usg:sfwpfi:2013:11
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