Markov switching of the electricity supply curve and power prices dynamics

Carlo Mari and Lucianna Cananà

Physica A: Statistical Mechanics and its Applications, 2012, vol. 391, issue 4, 1481-1488

Abstract: Regime-switching models seem to well capture the main features of power prices behavior in deregulated markets. In a recent paper, we have proposed an equilibrium methodology to derive electricity prices dynamics from the interplay between supply and demand in a stochastic environment. In particular, assuming that the supply function is described by a power law where the exponent is a two-state strictly positive Markov process, we derived a regime switching dynamics of power prices in which regime switches are induced by transitions between Markov states.

Keywords: Electricity prices; Stochastic processes; Regime-switches; Spikes (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:391:y:2012:i:4:p:1481-1488

DOI: 10.1016/j.physa.2011.11.016

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