Forecasting Electricity Prices and their volatilities using Unobserved Components.

García-Martos, Carolina and Rodríguez, Julio and Sánchez Naranjo, María Jesús (2011). Forecasting Electricity Prices and their volatilities using Unobserved Components.. "Energy Economics", v. 33 ; pp. 1227-1239. ISSN 0140-9883. https://doi.org/10.1016/j.eneco.2011.07.005.

Description

Title: Forecasting Electricity Prices and their volatilities using Unobserved Components.
Author/s:
  • García-Martos, Carolina
  • Rodríguez, Julio
  • Sánchez Naranjo, María Jesús
Item Type: Article
Título de Revista/Publicación: Energy Economics
Date: 2011
ISSN: 0140-9883
Volume: 33
Subjects:
Freetext Keywords: Conditional heteroskedasticity; Dynamic factor analysis; Iberian market; Long run; Non-stationary; Short run
Faculty: E.T.S.I. Industriales (UPM)
Department: Ingeniería de Organización, Administración de Empresas y Estadística
Creative Commons Licenses: Recognition - No derivative works - Non commercial

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Abstract

The liberalization of electricity markets more than ten years ago in the vast majority of developed countries has introduced the need of modelling and forecasting electricity prices and volatilities, both in the short and long term. Thus, there is a need of providing methodology that is able to deal with the most important features of electricity price series, which are well known for presenting not only structure in conditional mean but also time-varying conditional variances. In this work we propose a new model, which allows to extract conditionally heteroskedastic common factors from the vector of electricity prices. These common factors are jointly estimated as well as their relationship with the original vector of series, and the dynamics affecting both their conditional mean and variance. The estimation of the model is carried out under the state-space formulation. The new model proposed is applied to extract seasonal common dynamic factors as well as common volatility factors for electricity prices and the estimation results are used to forecast electricity prices and their volatilities in the Spanish zone of the Iberian Market. Several simplified/alternative models are also considered as benchmarks to illustrate that the proposed approach is superior to all of them in terms of explanatory and predictive power.

More information

Item ID: 12365
DC Identifier: http://oa.upm.es/12365/
OAI Identifier: oai:oa.upm.es:12365
DOI: 10.1016/j.eneco.2011.07.005
Deposited by: Memoria Investigacion
Deposited on: 17 Aug 2012 12:20
Last Modified: 19 May 2017 15:31
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