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A two-factor model for electricity prices with dynamic volatility

  • Schlüter, Stephan
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    The wavelet transform is used to identify a biannual and an annual seasonality in the Phelix Day Peak and to separate the long-term trend from its short-term motion. The short-term/long-term model for commodity prices of Schwartz & Smith (2000) is applied but generalised to account for weekly periodicities and time-varying volatility. Eventually we find a bivariate SARMA-CCC-GARCH model to fit best. Moreover it surpasses the goodness of fit of an univariate GARCH model, which shows that the additional effort of dealing with a two-factor model is worthwile.

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    Paper provided by Friedrich-Alexander-Universität Erlangen-Nürnberg, Institut für Wirtschaftspolitik und Quantitative Wirtschaftsforschung (IWQW) in its series IWQW Discussion Paper Series with number 04/2009.

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    Date of creation: 2009
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    Handle: RePEc:zbw:iwqwdp:042009
    Contact details of provider: Web page: http://www.iwqw.rw.uni-erlangen.de/

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