Independent Spike Models: Estimation and Validation

Erik Lindström () and Fredric Regland
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Erik Lindström: Centre for Mathematical Sciences, Lund University, Sweden, http://www.maths.lth.se/
Fredric Regland: Centre for Mathematical Sciences, Lund University, Sweden, http://www.maths.lth.se/

Czech Journal of Economics and Finance (Finance a uver), 2012, vol. 62, issue 2, 180-196

Abstract: The authors apply a class of Markov switching models (independent spike models) to six European electricity markets and two European gas markets. This paper extends the current framework by introducing Gamma distributed spikes, which improves the fit for most energy markets. The models are quite complex. The robustness of the estimates is therefore evaluated using three different estimation strategies: direct maximization of the likelihood function, the Expectation-Maximization algorithm, and Markov Chain Monte Carlo (MCMC). The seasonal variation is corrected for by using the month-ahead forward price as a predictor. The models provide good empirical results for most markets.

Keywords: regime switching models; electricity spot prices; independent spike models; gamma distribution (search for similar items in EconPapers)
JEL-codes: C22 C53 G17 Q4 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:fau:fauart:v:62:y:2012:i:2:p:180-196

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