Analysis and Modelling of Electricity Futures Prices

Borovkova Svetlana () and Geman Helyette
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Borovkova Svetlana: Free University of Amsterdam and Delft University of Technology, The Netherlands
Geman Helyette: Birkbeck, University of London

Studies in Nonlinear Dynamics & Econometrics, 2006, vol. 10, issue 3, 16

Abstract: We model electricity futures prices using a seasonal forward curve model, quantifying seasonalities by a deterministic seasonal forward premium. Stochastic features of the futures prices are contained in the stochastic forward premium: a quantity analogous to the well-known convenience yield. The model parameters are estimated from the historical data of IPE electricity futures prices and the spark spread, and electricity forward curves are deseasonalized to reveal their underlying stochastic structure. We apply principal component analysis to the deseasonalized forward curves and develop trading strategies using indicators based on these principal components.

Date: 2006
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DOI: 10.2202/1558-3708.1372

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