Futures pricing in electricity markets based on stable CARMA spot models
By Fred Espen Benth, Claudia Klüppelberg, Gernot J. Müller, L. Vos. 2012
96 citations recorded by the source corpus.
We present a new model for the electricity spot price dynamics, which is able to capture seasonality, low-frequency dynamics and extreme spikes in the market. Instead of the usual purely deterministic trend we introduce a non-stationary independent increment process for the low-frequency dynamics, and model the large fluctuations by a non-Gaussian stable CARMA process. The model allows for analytic futures prices, and we apply these to model and estimate the whole market consistently. Besides standard parameter estimation, an estimation procedure is suggested, where we fit the non-stationary trend using futures data with long time until delivery, and a robust L1-filter to find the states of the CARMA process. The procedure also involves the empirical and theoretical risk premia which – as a by-product – are also estimated. We apply this procedure to data from the German electricity exchange EEX, where we split the empirical analysis into base load and peak load prices. We find an overall negative risk premium for the base load futures contracts, except for contracts close to delivery, where a small positive risk premium is detected. Peak load contracts, on the other hand, show a clear positive risk premium, when they are close to delivery, while contracts in the longer end also have a negative premium.
Subfields: Electrical and Electronic Engineering, Finance
View Paper: https://www.semanticscholar.org/paper/4667dfec9452ee0b07962ac2a53942acd8b6de7b
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In Electrical and Electronic Engineering
In Finance
- Peter J. Brockwell
- V. Todorov
- T. Marquardt
- Robert Stelzer
- Ole E. Barndorff-Nielsen
- Mikkel Plagborg-Møller
- John Cristian Borges Gamboa
- Richard A. Davis
Citations in the corpus
- Electricity price modeling with stochastic time change (2017, unknown): “[6]).”
- Recent results in the theory and applications of CARMA processes (2014, methodology): “To these applications should also be added reference to the CARMA interest rate model (Andresen et al. 2012), the application of stable CARMA processes to futures pricing in electricity markets (Benth et al. 2013) and applications to signal extraction (McElroy 2013).”