A two-factor model for electricity prices with dynamic volatility

Stephan Schlüter

No 04/2009, FAU Discussion Papers in Economics from Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics

Abstract: The wavelet transform is used to identify a biannual and an annual seasonality in the Phelix Day Peak and to separate the long-term trend from its short-term motion. The short-term/long-term model for commodity prices of Schwartz & Smith (2000) is applied but generalised to account for weekly periodicities and time-varying volatility. Eventually we find a bivariate SARMA-CCC-GARCH model to fit best. Moreover it surpasses the goodness of fit of an univariate GARCH model, which shows that the additional effort of dealing with a two-factor model is worthwile.

Keywords: Wavelets; Seasonal Filter; Relative Wavelet Energy; Multivariate GARCH; Energy Price Modelling (search for similar items in EconPapers)
JEL-codes: C32 C51 (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwqwdp:042009

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