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A semiparametric factor model for electricity forward curve dynamics

Szymon Borak and Rafał Weron ()

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper we introduce the dynamic semiparametric factor model (DSFM) for electricity forward curves. The biggest advantage of our approach is that it not only leads to smooth, seasonal forward curves extracted from exchange traded futures and forward electricity contracts, but also to a parsimonious factor representation of the curve. Using closing prices from the Nordic power market Nord Pool we provide empirical evidence that the DSFM is an efficient tool for approximating forward curve dynamics.

Keywords: power market; forward electricity curve; dynamic semiparametric factor model (search for similar items in EconPapers)
JEL-codes: C51 Q40 G13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-ene
Date: 2008-07-10
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Forthcoming in Journal of Energy Markets 1 (3) (2008): pp. 3-16

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Working Paper: A semiparametric factor model for electricity forward curve dynamics (2008) Downloads
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