Modeling Electricity Prices with Regime Switching Models

We address the issue of modeling spot electricity prices with regime switching models. After reviewing the stylized facts about power markets we propose and fit various models to spot prices from the Nordic power exchange. Afterwards we assess their performance by comparing simulated and market prices.

[1]  D. Rubin,et al.  Maximum likelihood from incomplete data via the EM - algorithm plus discussions on the paper , 1977 .

[2]  Jonathan D. Cryer,et al.  Time Series Analysis , 1986 .

[3]  Ingve Simonsen,et al.  Modeling highly volatile and seasonal markets: evidence from the Nord Pool electricity market , 2004 .

[4]  R. Huisman,et al.  Regime Jumps in Electricity Prices , 2001 .

[5]  N. L. Johnson,et al.  Continuous Univariate Distributions. , 1995 .

[6]  I. Simonsen.  Measuring anti-correlations in the nordic electricity spot market by wavelets , 2001, cond-mat/0108033.

[7]  Eduardo S. Schwartz,et al.  Electricity Prices and Power Derivatives: Evidence from the Nordic Power Exchange , 2000 .

[8]  D. Pilipović,et al.  Energy Risk: Valuing and Managing Energy Derivatives , 1997 .

[9]  James D. Hamilton.  A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle , 1989 .

[10]  R. Weron,et al.  Modelling Electricity Prices: Jump Diffusion and Regime Switching , 2004 .

[11]  Robert Jameson,et al.  Managing energy price risk , 1999 .

[12]  L. Clewlow,et al.  Energy Derivatives: Pricing and Risk Management , 2000 .

[13]  T. Mount,et al.  ESTIMATING THE VOLATILITY OF SPOT PRICES IN RESTRUCTURED ELECTRICITY MARKETS AND THE IMPLICATIONS FOR OPTION VALUES , 1998 .

[14]  S. Goldfeld,et al.  A Markov model for switching regressions , 1973 .

[15]  R. Weron,et al.  Hurst analysis of electricity price dynamics , 2000 .

[16]  R. Quandt.  The Estimation of the Parameters of a Linear Regression System Obeying Two Separate Regimes , 1958 .

[17]  Karan Bhanot,et al.  Behavior of power prices: implications for the valuation and hedging of financial contracts , 2000 .