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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

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Helyette_Geman_Understanding_electricity_prices.pdf (781.1Kb)
Type
Article accepté pour publication ou publié
Date
2006-04
Journal name
The Journal of Business
Volume
79
Number
3
Publisher
University of Chicago Press
Pages
1225-1261
Publication identifier
http://www.jstor.org/stable/10.1086/500675
Metadata
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Author(s)
Geman, Hélyette
Roncoroni, Andréa
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 / Keywords
Energy price risk; Simulation; Calibration; Statistical estimations; Jump diffusions; Electricity prices
JEL
C13 - Estimation: General
C15 - Statistical Simulation Methods: General
Q40 - General
G12 - Asset Pricing; Trading Volume; Bond Interest Rates
C52 - Model Evaluation, Validation, and Selection
C51 - Model Construction and Estimation

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