Modelling Higher Moments of Electricity Prices

32 Pages Posted: 2 Jan 2013

See all articles by Gregorio Serna

Gregorio Serna

University of Castilla, La Mancha

Pablo Villaplana

Comisión Nacional de Energía

Date Written: May 2, 2007


It is crucial to model, quantify and understand the variables and dynamics that underlie the well-known extreme behaviour of spot electricity prices in wholesale markets. We explicitly model the conditional volatility and skewness of electricity prices. A GARCH-type model allowing for time-varying volatility and skewness, which is estimated assuming a Gram-Charlier expansion of the normal density function, is presented. This model is applied to data from Pennsylvania- New Jersey, NordPool and Victoria (Australia) markets. We document the existence of a rich structure in the conditional skewness of spot prices and we show the relationship between skewness and demand-supply related variables.

Keywords: Spot electricity prices, GARCH models, conditional volatility, conditional skewness, Gram-Charlier expansions

JEL Classification: G12, G13, C13, C14, Q4

Suggested Citation

Serna, Gregorio and Villaplana, Pablo, Modelling Higher Moments of Electricity Prices (May 2, 2007). Available at SSRN: or

Gregorio Serna

University of Castilla, La Mancha ( email )

Plaza Universidad, 1
02071 Albacete, Ciudad Real 13071

Pablo Villaplana (Contact Author)

Comisión Nacional de Energía ( email )

Alcalá, 47
Madrid, Madrid 28014

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