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Electricity Forward Curves with Thin Granularity

43 Pages Posted: 12 May 2016 Last revised: 12 Feb 2017

Ruggero Caldana

Accenture SPA

Gianluca Fusai

Università del Piemonte Orientale Dipartimento di Studi per l'Economia e l'Impresa; Cass Business School, City University London

Andrea Roncoroni

ESSEC Business School

Date Written: April 15, 2016

Abstract

We put forward a constructive definition of electricity forward price curve with cross-sectional timescale encompassing hourly frequency upward. The curve is jointly consistent to both risk-neutral market information, as represented by base load and peak load futures quotes, and historical market information, as mirrored by periodical patterns exhibited by time series of day-ahead prices. On a methodological ground, we combine non-parametric filtering with monotone convex interpolation in a way that the resulting forward curve is path wise smooth and monotonic, cross-sectionally stable, and time local. On an empirical ground, we exhibit these features in the joint context of EPEX Spot and EEX Derivative markets. A back testing analysis assesses the relative quality of our forward curve estimate compared to the benchmark market model of Benth et al. (2007).

Keywords: Energy Finance, Forward Pricing, Electricity Markets, Forward Curve Construction

JEL Classification: C31, E43, G13, Q02

Suggested Citation

Caldana, Ruggero and Fusai, Gianluca and Roncoroni, Andrea, Electricity Forward Curves with Thin Granularity (April 15, 2016). Available at SSRN: https://ssrn.com/abstract=2777990

Ruggero Caldana

Accenture SPA ( email )

via Maurizio Quadrio 17
Milan
Italy

Gianluca Fusai

Università del Piemonte Orientale Dipartimento di Studi per l'Economia e l'Impresa ( email )

Via Perrone, 18
Novara, 28100
Italy

HOME PAGE: http://https://upobook.uniupo.it/gianluca.fusai

Cass Business School, City University London ( email )

106 Bunhill Row
London, EC2Y 8HB
Great Britain

HOME PAGE: http:// www.cass.city.ac.uk/experts/G.Fusai

Andrea Roncoroni (Contact Author)

ESSEC Business School ( email )

Avenue Bernard Hirsch BP 50105
Cergy-Pontoise, 95021
France
+33 (0)1 34 43 32 39 (Phone)
+33 (0)1 34 43 30 01 (Fax)

HOME PAGE: http://www45.essec.edu/faculty/andrea-roncoroni

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