Abstract

http://ssrn.com/abstract=1763906
 
 

References (27)



 
 

Citations



 


 



Modeling Electricity Spot Prices - Combining Mean-Reversion, Spikes and Stochastic Volatility


Klaus Mayer


Technische Universität München (TUM) - Center for Entrepreneurial and Financial Studies (CEFS)

Thomas Schmid


Technische Universität München (TUM) - Department of Financial Management and Capital Markets

Florian Weber


Technische Universität München (TUM) - Center for Entrepreneurial and Financial Studies (CEFS)

Septermber 10, 2012

European Journal of Finance, Forthcoming

Abstract:     
With the liberalization of electricity trading, the electricity market has grown rapidly over the last decade. However, while spot and future markets are currently rather liquid, option trading is still limited. One of the potential reasons for this is that the electricity spot price process remains a puzzle to researchers and practitioners. In this paper, we propose an approach to model electricity spot prices that combines mean reversion, spikes, negative prices, and stochastic volatility. Thereby, we use different mean reversion rates for normal and extreme (spike) periods. Furthermore, all model parameters can easily be estimated using historical data. Consequently, we argue that this model does not only extend academic literature on electricity spot price modeling, but is also suitable for practical purposes, such as an underlying price model for option pricing.

Keywords: Electricity, Energy markets, Lévy processes, Mean-reversion, Spikes, Stochastic volatility, GARCH

JEL Classification: G17

Accepted Paper Series





Not Available For Download

Date posted: February 21, 2011 ; Last revised: October 24, 2012

Suggested Citation

Mayer, Klaus and Schmid, Thomas and Weber, Florian, Modeling Electricity Spot Prices - Combining Mean-Reversion, Spikes and Stochastic Volatility (Septermber 10, 2012). European Journal of Finance, Forthcoming . Available at SSRN: http://ssrn.com/abstract=1763906 or http://dx.doi.org/10.2139/ssrn.1763906

Contact Information

Klaus Mayer (Contact Author)
Technische Universität München (TUM) - Center for Entrepreneurial and Financial Studies (CEFS) ( email )
Arcisstr. 21
Munich, 80333
Germany
++49 89 289 25479 (Phone)
++49 89 289 25488 (Fax)
Thomas Schmid
Technische Universität München (TUM) - Department of Financial Management and Capital Markets ( email )
Munich, 80333
Germany
HOME PAGE: http://www.fm.wi.tum.de
Florian Weber
Technische Universität München (TUM) - Center for Entrepreneurial and Financial Studies (CEFS) ( email )
Arcisstraße 21
München, 80333
Germany
++49 89 289 25479 (Phone)
++49 89 289 25488 (Fax)
HOME PAGE: http://www.cefs.de
Feedback to SSRN


Paper statistics
Abstract Views: 1,256

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo5 in 0.344 seconds