Estimation of the Number of Factors in a Multi-Factorial Heath-Jarrow-Morton Model in Power Markets

Olivier Féron () and Pierre Gruet ()
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Olivier Féron: EDF R&D and Fime Lab
Pierre Gruet: EDF R&D and Fime Lab

A chapter in Quantitative Energy Finance, 2024, pp 3-39 from Springer

Abstract: Abstract We study the calibration of specific multi-factorial Heath-Jarrow-Morton models to power market prices, with a focus on the estimation of the optimal number of Gaussian factors. We describe a common statistical procedure based on likelihood maximisation and Akaike/Bayesian information criteria, in the case of a joint calibration on both spot and futures prices. We perform a detailed analysis on three national markets within Europe: Belgium, France, and Germany. The results show a lot of similarities among all the markets we consider, especially on the optimal number of factors and on the behaviour of the different factors.

Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-50597-3_1

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DOI: 10.1007/978-3-031-50597-3_1

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