Multivariate volatility modeling of electricity futures

Luc Bauwens, Christian Hafner and Diane Pierret

No 2011011, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: The deregulation of European electricity markets has led to an increasing need in understanding the volatility and correlation structure of electricity prices. We model a multivariate futures series of the European Energy Exchange (EEX) index, using an asymmetric GARCH model for volatilities and augmented dynamic conditional correlation (DCC) models for correlations. In particular, we allow for smooth changes in the unconditional volatilities and correlations through a multiplicative component that we estimate non-parametrically. We also introduce exogenous variables in our new multiplicative DCC model to account for congestion in short-term conditional volatilities. We find different correlation dynamics for long and short-term contracts and the new model achieves higher forecasting performance compared to a standard DCC model.

Keywords: dynamic conditional correlation; electricity futures; forecasting (search for similar items in EconPapers)
JEL-codes: C32 C53 C58 (search for similar items in EconPapers)
Date: 2011-02-01
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Citations: View citations in EconPapers (22)

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https://sites.uclouvain.be/core/publications/coredp/coredp2011.html (application/pdf)

Related works:
Journal Article: MULTIVARIATE VOLATILITY MODELING OF ELECTRICITY FUTURES (2013)
Working Paper: Multivariate volatility modeling of electricity futures (2013)
Working Paper: Multivariate volatility modeling of electricity futures (2011)
Working Paper: Multivariate volatility modeling of electricity futures (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2011011

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