Joint Econometric Modeling of Spot Electricity Prices, Forwards and Options

Alain Monfort and Olivier Féron ()
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Olivier Féron: EDF, FiME

No 2011-12, Working Papers from Center for Research in Economics and Statistics

Abstract: We propose a joint modeling of spot electricity prices , forwards prices and other derivative prices, using recent developments in discrete time asset pricing methods based on the notions of stochastic discount factor and of Compound Autoregressive (or affine) stochastic processes. We show that this approach provides quasi explicit formulae for forward and option prices, while allowing for a large flexilbility in the modeling of dynamics, spikes and seasonality, both in the historical and the risk neutral worlds. We also propose a variety of inference techniques involving inversion methods, the Kalman Filter and the Kitagawa-Hamilton filter. Finally, examples using simulations of spot and forward prices illustrate the large potentialities of our modeling

Keywords: Electricity derivative pricing; spikes; Car processes; stochastic discount factor; Kitagawa-Hamilton filter (search for similar items in EconPapers)
Pages: 44
Date: 2011-03
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Related works:
Journal Article: Joint econometric modeling of spot electricity prices, forwards and options (2012)
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