Multivariate constrained robust M‐regression for shaping forward curves in electricity markets

Peter Leoni, Pieter Segaert, Sven Serneels and Tim Verdonck

Journal of Futures Markets, 2018, vol. 38, issue 11, 1391-1406

Abstract: In this paper, a multivariate constrained robust M‐regression method is developed to estimate shaping coefficients for electricity forward prices. An important benefit of the new method is that model arbitrage can be ruled out at an elementary level, as all shaping coefficients are treated simultaneously. Moreover, the new method is robust to outliers, such that the provided results are stable and not sensitive to isolated sparks or dips in the market. An efficient algorithm is presented to estimate all shaping coefficients at a low computational cost. To illustrate its good performance, the method is applied to German electricity prices.

Date: 2018
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