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
Date Written: October 14, 2003
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: Suggested Citation