The Impact of Forecasting Jumps on Forecasting Electricity Prices

Maciej Kostrzewski and Jadwiga Kostrzewska
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Maciej Kostrzewski: Department of Econometrics and Operations Research, Cracow University of Economics, 27 Rakowicka Street, 31-510 Cracow, Poland
Jadwiga Kostrzewska: Department of Statistics, Cracow University of Economics, 27 Rakowicka Street, 31-510 Cracow, Poland

Energies, 2021, vol. 14, issue 2, 1-17

Abstract: The paper is devoted to forecasting hourly day-ahead electricity prices from the perspective of the existence of jumps. We compare the results of different jump detection techniques and identify common features of electricity price jumps. We apply the jump-diffusion model with a double exponential distribution of jump sizes and explanatory variables. In order to improve the accuracy of electricity price forecasts, we take into account the time-varying intensity of price jump occurrences. We forecast moments of jump occurrences depending on several factors, including seasonality and weather conditions, by means of the generalised ordered logit model. The study is conducted on the basis of data from the Nord Pool power market. The empirical results indicate that the model with the time-varying intensity of jumps and a mechanism of jump prediction is useful in forecasting electricity prices for peak hours, i.e., including the probabilities of downward, no or upward jump occurrences into the model improves the forecasts of electricity prices.

Keywords: electricity prices; forecasting; jumps; jump-diffusion model; generalised ordered logit model; time-varying jump intensity (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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