Spot-forward Model for Electricity Prices

Stein-Erik Fleten, Florentina Paraschiv and Michel Schürle ()
Authors registered in the RePEc Author Service: Michael Schuerle

No 1311, Working Papers on Finance from University of St. Gallen, School of Finance

Abstract: We propose a novel regime-switching approach for the simulation of electricity spot prices that is inspired by the class of fundamental models and takes into account the relation between spot and forward prices. Additionally the model is able to reproduce spikes and negative prices. Market prices are derived given an observed forward curve. We distinguish between a base regime and an upper as well as a lower spike regime. The model parameters are calibrated using historical hourly price forward curves for EEX Phelix and the dynamic of hourly spot prices. We further evaluate different time series models such as ARMA and GARCH that are usually applied for modeling electricity prices and conclude a better performance of the proposed regime-switching model.

Keywords: electricity prices; regime-switching model; negative prices; spikes; price forward curves (search for similar items in EconPapers)
Pages: 31 pages
Date: 2013-07
New Economics Papers: this item is included in nep-ecm, nep-ene and nep-reg
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:usg:sfwpfi:2013:11

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