High Frequency Electricity Spot Price Dynamics: An Intra-Day Markets Approach

25 Pages Posted: 26 Feb 2003

See all articles by Graeme Guthrie

Graeme Guthrie

Victoria University of Wellington - School of Economics & Finance

Steen Videbeck

Cornell University

Date Written: December 21, 2002

Abstract

In this paper we develop a new approach to understanding the behavior of high frequency electricity spot prices. It treats electricity delivered at different times of the day as different commodities, while recognizing that these commodities may be traded on a small number of intra-day markets. We first present a detailed analysis of the high frequency dynamics of prices at a key New Zealand node. Our analysis, which includes the use of a periodic autoregression model, supports the treating of electricity as multiple commodities and also reveals intrinsic correlation properties that indicate the existence of distinct intra-day markets. Conventional models cannot adequately capture properties that have important implications for derivative pricing and real options analysis. We therefore extend the literature by introducing a state space model of high frequency spot prices that preserves this intra-day market structure.

Keywords: Electricity spot prices, periodic autoregression, intra-day market

JEL Classification: G10, G13, L94, Q40

Suggested Citation

Guthrie, Graeme and Videbeck, Steen, High Frequency Electricity Spot Price Dynamics: An Intra-Day Markets Approach (December 21, 2002). Available at SSRN: https://ssrn.com/abstract=367760 or http://dx.doi.org/10.2139/ssrn.367760

Graeme Guthrie (Contact Author)

Victoria University of Wellington - School of Economics & Finance ( email )

P.O. Box 600
Wellington 6140
New Zealand
64 4 463 5763 (Phone)

Steen Videbeck

Cornell University ( email )

Ithaca, NY 14853
United States

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