Electricity price modeling with stochastic time change

By Svetlana Borovkova, Maren Diane Schmeck. 2017

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In this paper, we develop a novel approach to electricity price modeling, based on the powerful technique of stochastic time change. This technique allows us to incorporate the characteristic features of electricity prices (such as seasonal volatility, time varying mean reversion and seasonally occurring price spikes) into the model in an elegant and economically justifiable way. The stochastic time change introduces stochastic as well as deterministic (e.g., seasonal) features in the price process' volatility and in the jump component.

Subfields: Economics and Econometrics, Electrical and Electronic Engineering

View Paper: https://www.semanticscholar.org/paper/2801987815de8ea927cd5887b9f849692943ebbc