A branching process approach to power markets

Ying Jiao, Chunhua Ma, Simone Scotti and Carlo Sgarra

Energy Economics, 2019, vol. 79, issue C, 144-156

Abstract: We propose and investigate a market model for power prices, including most basic features exhibited by previous models and taking into account self-exciting properties. The model proposed extends Hawkes-type models by introducing a twofold integral representation property. A Random Field approach was already exploited by Barndorff-Nielsen et al., who adopted the Ambit Field framework for describing the power price dynamics. The novelty contained in our approach consists of combining the basic features of both Branching Processes and Random Fields in order to get a realistic and parsimonious model setting. We shall provide some closed-form evaluation formulae for forward contracts. We discuss the risk premium behavior, by pointing out that in the present framework, a very realistic description arises. We outline a possible methodology for parameters estimation. We illustrate by graphical representation the main achievements of this approach.

Keywords: Branching Processes; Energy markets; Self-exciting structures; Risk premium term structure; Random Fields (search for similar items in EconPapers)
JEL-codes: C02 C53 G12 G13 O13 Q47 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:79:y:2019:i:c:p:144-156

DOI: 10.1016/j.eneco.2018.03.002

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