Understanding the Fine Structure of Electricity Prices
Geman, Hélyette; Roncoroni, Andréa (2006), Understanding the Fine Structure of Electricity Prices, The Journal of Business, 79, 3, p. 1225-1261. http://www.jstor.org/stable/10.1086/500675
TypeArticle accepté pour publication ou publié
Journal nameThe Journal of Business
University of Chicago Press
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Abstract (EN)This paper analyzes the special features of electricity spot prices derived from the physics of this commodity and from the economics of supply and demand in a market pool. Besides mean-reversion, a property they share with other commodities, power prices exhibit the unique feature of spikes in trajectories. We introduce a class of discontinuous processes exhibiting a jump-reversion component to properly represent these sharp upward moves shortly followed by drops of similar magnitude. Our approach allows to capture - for the first time to our knowledge - both the trajectorial and the statistical properties of electricity pool prices. The quality of the fitting is illustrated on a database of major US power markets.
Subjects / KeywordsEnergy price risk; Simulation; Calibration; Statistical estimations; Jump diffusions; Electricity prices
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