A Threshold Autoregressive Model for Wholesale Electricity Prices

Journal of the Royal Statistical Society (Series C, Applied Statistics), 54(3), 1-13 (2005)

15 Pages Posted: 25 Jul 2013

See all articles by Bhojnarine Rambharat

Bhojnarine Rambharat

Office of the Comptroller of the Currency

A. E. Brockwell

Carnegie Mellon University - Department of Statistics

Duane J. Seppi

Carnegie Mellon University - David A. Tepper School of Business

Date Written: October 14, 2003

Abstract

We introduce a discrete-time model for electricity prices, which accounts for both transitory spikes and temperature effects. The model allows for different rates of mean-reversion: One for weather events, one around price jumps, and another for the remainder of the process. We estimate the model using a Markov chain Monte Carlo approach with three years of data from Allegheny County, Pennsylvania. We show that our model outperforms existing stochastic jump-diffusion models for this data set. Results also demonstrate the importance of model parameters corresponding to both the temperature effect and the multi-level mean-reversion rate.

Keywords: Threshold autoregressive model, Eelectricity prices, Spikes, Markov chain Monte Carlo

JEL Classification: C11, C15, C22

Suggested Citation

Rambharat, Bhojnarine and Brockwell, A. E. and Seppi, Duane J., A Threshold Autoregressive Model for Wholesale Electricity Prices (October 14, 2003). Journal of the Royal Statistical Society (Series C, Applied Statistics), 54(3), 1-13 (2005). Available at SSRN: https://ssrn.com/abstract=2296948

Bhojnarine Rambharat (Contact Author)

Office of the Comptroller of the Currency ( email )

400 7th Street SW
Mail-stop 6E-2
Washington, DC 20219
United States

HOME PAGE: http://www.occ.gov/topics/economics/economics-staff/bios/ricky-rambharat-bio.html

A. E. Brockwell

Carnegie Mellon University - Department of Statistics ( email )

Pittsburgh, PA 15213-3890
United States

Duane J. Seppi

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
412-268-2298 (Phone)
412-268-8896 (Fax)

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