Modeling electricity forward prices using the multivariate normal inverse Gaussian distribution

Arne Andresen, Steen Koekebakker and Sjur Westgaard

Journal of Energy Markets

Abstract: ABSTRACT This paper presents a discrete random-field model for forward prices driven by the multivariate normal inverse Gaussian distribution. The model captures the idiosyncratic risk and adequately addresses the heavy tails characterizing electricity forward prices. We fit the model to forward prices from the Nordic power exchange using a Markov chain Monte Carlo algorithm. This is then compared with Gaussian-based multifactor models in terms of goodness of fit to historical log returns. Our finding is that the proposed model offers a superior fit to the empirical distributions.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-of-energy-markets/216 ... aussian-distribution (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rsk:journ2:2160785

Access Statistics for this article

More articles in Journal of Energy Markets from Journal of Energy Markets
Bibliographic data for series maintained by Thomas Paine ().