Extreme Value Theory and Extremely Large Electricity Price Changes

Hans Byström

No 2001:19, Working Papers from Lund University, Department of Economics

Abstract: Nord Pool, the first multinational exchange for electricity trading, has existed since January 1996. Typical characteristics of electricity prices on Nord Pool are a very high volatility and a large number of very large, or extreme, price changes. In this paper we look at hourly spot prices on NordPool and apply extreme value theory to investigate the tails of the price change distribution. We find a good fit of both the generalized extreme value distribution and the generalized Pareto distribution to AR-GARCH filtered price change series, and accurate estimates as well as forecasts of extreme quantiles are produced. Generally, our results suggest extreme value theory to be of interest to both risk managers and portfolio managers in the highly volatile electricity market.

Keywords: electricity prices; conditional extreme value theory; GARCH; tail quantiles (search for similar items in EconPapers)
JEL-codes: C22 C53 G19 Q49 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2001-10-15
New Economics Papers: this item is included in nep-ecm, nep-ias and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published in International Review of Economics and Finance, 2005, pages 41-55.

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:lunewp:2001_019

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