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An Intraday Empirical Analysis of Electricity Price Behaviour

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Abstract

This paper proposes an approach to the intraday analysis of the dynamics of electricity prices. The Growth Optimal Portfolio (GOP) is used as a reference unit in a continuous financial electricity price model. A diversified global portfolio in the form of a market capitalisation weighted index approximates the GOP. The GOP, measured in units of electricity, is normalised and then modeled as a time transformed square root process of dimension four. The dynamics of the resulting process is empirically verified. Intraday spot electricity prices from the US and Australian markets are used for this analysis. The empirical findings identify a simple but realistic model for examining the volatile behaviours of electricity prices. The proposed model reflects the historical price evolution reasonably well by using a only a few robust but readily observable parameters. The evolution of the tranformed times is modeled via a rapidly evolving market activity. A periodic, ergodic process with deterministic volatility is used to model market activity.

Suggested Citation

  • Eckhard Platen & Jason West & Wolfgang Breymann, 2004. "An Intraday Empirical Analysis of Electricity Price Behaviour," Research Paper Series 140, Quantitative Finance Research Centre, University of Technology, Sydney.
  • Handle: RePEc:uts:rpaper:140
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    File URL: http://www.qfrc.uts.edu.au/research/research_papers/rp140.pdf
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    References listed on IDEAS

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    1. Knittel, Christopher R. & Roberts, Michael R., 2005. "An empirical examination of restructured electricity prices," Energy Economics, Elsevier, vol. 27(5), pages 791-817, September.
    2. Eckhard Platen, 2001. "Arbitrage in Continuous Complete Markets," Research Paper Series 72, Quantitative Finance Research Centre, University of Technology, Sydney.
    3. Hans Buhlmann & Eckhard Platen, 2002. "A Discrete Time Benchmark Approach for Finance and Insurance," Research Paper Series 74, Quantitative Finance Research Centre, University of Technology, Sydney.
    4. Eckhard Platen, 2004. "Diversified Portfolios with Jumps in a Benchmark Framework," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 11(1), pages 1-22, March.
    5. Wolfgang Breymann & Leah Kelly & Eckhard Platen, 2005. "Intraday Empirical Analysis and Modeling of Diversified World Stock Indices," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 12(1), pages 1-28, March.
    6. B├╝hlmann, Hans & Platen, Eckhard, 2003. "A Discrete Time Benchmark Approach for Insurance and Finance," ASTIN Bulletin: The Journal of the International Actuarial Association, Cambridge University Press, vol. 33(02), pages 153-172, November.
    7. Gibson, Rajna & Schwartz, Eduardo S, 1990. " Stochastic Convenience Yield and the Pricing of Oil Contingent Claims," Journal of Finance, American Finance Association, vol. 45(3), pages 959-976, July.
    8. Long, John Jr., 1990. "The numeraire portfolio," Journal of Financial Economics, Elsevier, vol. 26(1), pages 29-69, July.
    9. I. Bajeux-Besnainou & R. Portait, 1997. "The numeraire portfolio: a new perspective on financial theory," The European Journal of Finance, Taylor & Francis Journals, vol. 3(4), pages 291-309.
    10. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
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    More about this item

    Keywords

    intraday analysis; electricity price model; growth optimal portfolio; market activity;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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