Spot and derivative pricing in the EEX power market |
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Authors: | Michael Bierbrauer Christian Menn Svetlozar T Rachev Stefan Trück |
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Institution: | 1. Johann-Wolfgang Goethe Universität Frankfurt am Main, Germany;2. Sal. Oppenheim jr. & Cie, Germany;3. Universität Karlsruhe, Germany;4. Department of Economics, Macquarie University, Sydney, Australia |
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Abstract: | Using spot and futures price data from the German EEX Power market, we test the adequacy of various one-factor and two-factor models for electricity spot prices. The models are compared along two different dimensions: (1) We assess their ability to explain the major data characteristics and (2) the forecasting accuracy for expected future spot prices is analyzed. We find that the regime-switching models clearly outperform its competitors in almost all respects. The best results are obtained using a two-regime model with a Gaussian distribution in the spike regime. Furthermore, for short and medium-term periods our results underpin the frequently stated hypothesis that electricity futures quotes are consistently greater than the expected future spot, a situation which is denoted as contango. |
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Keywords: | G10 C50 L94 Q40 |
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