A Family of Reduced-Form Models for Electricity Prices

Posted: 14 Jun 2003

See all articles by Hélyette Geman

Hélyette Geman

University of London - Economics, Mathematics and Statistics

Andrea Roncoroni

ESSEC Business School

Abstract

This paper presents a family of processes to model electricity spot prices in deregulated markets. Besides mean-reversion, a property they share with other commodities, power prices exhibit the unique feature of spikes in trajectories. We introduce a class of discontinuous processes exhibiting a "jump-reversion" component to properly represent these sharp upward moves shortly followed by drops of similar magnitude. Our appoach allows to capture - for the first time to our knowledge - both the trajectorial and the statistical properties of electricity pool prices. The quality of the fitting is illustrated on a database of major US power markets.

JEL Classification: C51, C52

Suggested Citation

Geman, Helyette and Roncoroni, Andrea, A Family of Reduced-Form Models for Electricity Prices. Available at SSRN: https://ssrn.com/abstract=406683

Helyette Geman (Contact Author)

University of London - Economics, Mathematics and Statistics ( email )

Malet Street
London, WC1E 7HX
United Kingdom

Andrea Roncoroni

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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