Abstract

We model electricity futures prices using a seasonal forward curve model, quantifying seasonalities by a deterministic seasonal forward premium. Stochastic features of the futures prices are contained in the stochastic forward premium: a quantity analogous to the well-known convenience yield. The model parameters are estimated from the historical data of IPE electricity futures prices and the spark spread, and electricity forward curves are deseasonalized to reveal their underlying stochastic structure. We apply principal component analysis to the deseasonalized forward curves and develop trading strategies using indicators based on these principal components.

Recommended Citation

Svetlana Borovkova and Helyette Geman (2006) "Analysis and Modelling of Electricity Futures Prices", Studies in Nonlinear Dynamics & Econometrics: Vol. 10: No. 3, Article 6.
http://www.bepress.com/snde/vol10/iss3/art6

Related Files

borovkova_datacode.zip (271 kB)
Data and code