Modelling Energy Markets with Extreme Spikes

Thorsten Schmidt ()
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Thorsten Schmidt: University of Leipzig, Department of Mathematics

A chapter in Mathematical Control Theory and Finance, 2008, pp 359-375 from Springer

Abstract: Summary This paper suggests a new approach to model spot prices of electricity. It uses a shot-noise model to capture extreme spikes typically arising in electricity markets. Moreover, the model easily accounts for seasonality and mean reversion. We compute futures prices in closed form and show that the resulting shapes capture a large variety of typically observed term structures. For statistical purposes we show how to use the EM-algorithm. An estimation on spot price data from the European Energy Exchange illustrate the applicability of the model.

Keywords: Term Structure; Electricity Market; Electricity Price; Future Price; Martingale Measure (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-540-69532-5_20

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DOI: 10.1007/978-3-540-69532-5_20

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