An Intraday Empirical Analysis of Electricity Price Behaviour

Eckhard Platen (), Jason West and Wolfgang Breymann

No 140, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: This paper proposes an approach to the intraday analysis of the dynamics of electricity prices. The Growth Optimal Portfolio (GOP) is used as a reference unit in a continuous financial electricity price model. A diversified global portfolio in the form of a market capitalisation weighted index approximates the GOP. The GOP, measured in units of electricity, is normalised and then modeled as a time transformed square root process of dimension four. The dynamics of the resulting process is empirically verified. Intraday spot electricity prices from the US and Australian markets are used for this analysis. The empirical findings identify a simple but realistic model for examining the volatile behaviours of electricity prices. The proposed model reflects the historical price evolution reasonably well by using a only a few robust but readily observable parameters. The evolution of the tranformed times is modeled via a rapidly evolving market activity. A periodic, ergodic process with deterministic volatility is used to model market activity.

Keywords: intraday analysis; electricity price model; growth optimal portfolio; market activity (search for similar items in EconPapers)
JEL-codes: G10 G13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-fin and nep-rmg
Date: 2004-11-01
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Persistent link: http://EconPapers.repec.org/RePEc:uts:rpaper:140

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