Skip to Main content Skip to Navigation
Journal articles

Practical stochastic modelling of electricity prices

Abstract : We develop a flexible multifactor stochastic model with Markov regime-switching spikes, for daily spot and forward electricity. The model captures various stylized features of power prices, including mean reversion and seasonal patterns, and short- lived spikes. Parameters are estimated through a practical two-step procedure, that combines pre-calibration of deterministic elements and spikes, and state-space estimation of diffusive factors. We use several results on affine jump diffusions to combine the spike and diffusive components, and to provide convenient closed-form solutions for important power derivatives. We also propose a simple nonparametric model for hourly spot prices, based on hourly profile sampling from historical data. This model can reproduce complicated intraday patterns, and enables fast numerical pricing of hourly options. We illustrate the performance of the daily and hourly models using data from the Amsterdam Power Exchange.
Document type :
Journal articles
Complete list of metadata

Cited literature [52 references]  Display  Hide  Download
Contributor : Laurence Porte Connect in order to contact the contributor
Submitted on : Friday, July 11, 2014 - 4:37:07 PM
Last modification on : Tuesday, October 19, 2021 - 11:02:47 AM
Long-term archiving on: : Saturday, October 11, 2014 - 10:45:46 AM


Files produced by the author(s)


  • HAL Id : hal-01021603, version 1



Michel Culot, Valérie Goffin, Steve Lawford, Sébastien de Meten, Yves Smeers. Practical stochastic modelling of electricity prices. The journal of energy markets, Infopro Digital, 2013, 6 (1), pp 1-40. ⟨hal-01021603⟩



Record views


Files downloads