Heavy-tails and regime-switching in electricity prices

Rafał Weron

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper we first analyze the stylized facts of electricity prices, in particular, the extreme volatility and price spikes which lead to heavy-tailed distributions of price changes. Then we calibrate Markov regime-switching (MRS) models with heavy-tailed components and show that they adequately address the aforementioned characteristics. Contrary to the common belief that electricity price models ‘should be built on log-prices’, we find evidence that modeling the prices themselves is more beneficial and methodologically sound, at least in case of MRS models.

Keywords: Electricity spot price; Heavy-tails; Spikes; Markov regime-switching; Pareto distribution (search for similar items in EconPapers)
JEL-codes: C51 Q40 (search for similar items in EconPapers)
Date: 2008-05-09
New Economics Papers: this item is included in nep-ene
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (39)

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Related works:
Journal Article: Heavy-tails and regime-switching in electricity prices (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:10424

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