Summary
In this paper we address the issue of modeling spot electricity prices. After analyzing factors leading to the unobservable in other financial or commodity markets price dynamics we propose a mean reverting jump diffusion model. We fit the model to data from the Nord Pool power exchange and find that it nearly duplicates the spot price’s main characteristics. The model can thus be used for risk management and pricing derivatives written on the spot electricity price.
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Weron, R., Simonsen, I., Wilman, P. (2004). Modeling highly volatile and seasonal markets: evidence from the Nord Pool electricity market. In: Takayasu, H. (eds) The Application of Econophysics. Springer, Tokyo. https://doi.org/10.1007/978-4-431-53947-6_25
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DOI: https://doi.org/10.1007/978-4-431-53947-6_25
Publisher Name: Springer, Tokyo
Print ISBN: 978-4-431-67961-5
Online ISBN: 978-4-431-53947-6
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