An empirical comparison of alternate regime-switching models or electricity spot prices

Joanna Janczura and Rafał Weron

MPRA Paper from University Library of Munich, Germany

Abstract: One of the most profound features of electricity spot prices are the price spikes. Markov regime-switching (MRS) models seem to be a natural candidate for modeling this spiky behavior. However, in the studies published so far, the goodness-of-fit of the proposed models has not been a major focus. While most of the models were elegant, their fit to empirical data has either been not examined thoroughly or the signs of a bad fit ignored. With this paper we want to fill the gap. We calibrate and test a range of MRS models in an attempt to find parsimonious specifications that not only address the main characteristics of electricity prices but are statistically sound as well. We find that the most universal and robust structure is that of an independent spike 3-regime model with heteroscedastic diffusion-type base regime dynamics and shifted spike regime distributions.

Keywords: Electricity spot price; Spikes; Markov regime-switching; Heteroscedasticity (search for similar items in EconPapers)
JEL-codes: C51 Q47 (search for similar items in EconPapers)
Date: 2010-02-06
New Economics Papers: this item is included in nep-ene
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Citations: View citations in EconPapers (121)

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https://mpra.ub.uni-muenchen.de/20546/1/MPRA_paper_20546.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/20661/1/MPRA_paper_20661.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/22876/1/MPRA_paper_22876.pdf revised version (application/pdf)

Related works:
Journal Article: An empirical comparison of alternate regime-switching models for electricity spot prices (2010)
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