Modeling Spikes in Electricity Prices
12 Pages Posted: 5 Jan 2008
Abstract
During periods of market stress, electricity prices can rise dramatically. Electricity retailers cannot pass these extreme prices on to customers because of retail price regulation. Improved prediction of these price spikes therefore is important for risk management. This paper builds a time-varying-probability Markov-switching model of Queensland electricity prices, aimed particularly at forecasting price spikes. Variables capturing demand and weather patterns are used to drive the transition probabilities. Unlike traditional Markov-switching models that assume normality of the prices in each state, the model presented here uses a generalized beta distribution to allow for the skewness in the distribution of electricity prices during high-price episodes.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
By Luc Bauwens and J. V. K. Rombouts
-
Time-Varying Arrival Rates of Informed and Uninformed Trades
By David Easley, Liuren Wu, ...
-
A Model for the Federal Funds Rate Target
By James D. Hamilton and Oscar Jorda
-
A Model for the Federal Funds Rate Target
By James D. Hamilton and Oscar Jorda
-
The Logarithmic Acd Model: An Application to the Bid-Ask Quote Process of Three NYSE Stocks
By Luc Bauwens and Pierre Giot
-
By Luc Bauwens and David Veredas
-
Identifying Bull and Bear Markets in Stock Returns
By John M. Maheu and Thomas H. Mccurdy