MULTI-FACTOR JUMP-DIFFUSION MODELS OF ELECTRICITY PRICES

Thilo Meyer-Brandis () and Peter Tankov ()
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Thilo Meyer-Brandis: Center of Mathematics for Applications, University of Oslo, P. O. Box 1053, Blindern, Norway
Peter Tankov: Laboratoire de Probabilités et Modèles Aléatoires, 13 Université Paris-Diderot (Paris 7), Case 7012, 2 Place Jussieu, 75251 Paris Cedex 05, France

International Journal of Theoretical and Applied Finance (IJTAF), 2008, vol. 11, issue 05, 503-528

Abstract: The recent deregulation of electricity markets has led to the creation of energy exchanges, where the electricity is freely traded. In this paper, we study the most salient statistical features of electricity prices with a particular attention to the European energy exchanges. These features can be adequately reproduced by the sum-OU model: a model representing the price as a sum of Lévy-driven Ornstein–Uhlenbeck (OU) processes. We present a new method for filtering out the different OU components and develop a statistical procedure for estimating the sum-OU model from data.

Keywords: Electricity prices; multi-factor models; Lévy-driven Ornstein–Uhlenbeck type processes; statistical estimation; nonlinear filtering (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (45)

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DOI: 10.1142/S0219024908004907

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