TY - JOUR
T1 - Spot and derivative pricing in the EEX power market
AU - Bierbrauer, Michael
AU - Menn, Christian
AU - Rachev, Svetlozar T.
AU - Trück, Stefan
PY - 2007/11
Y1 - 2007/11
N2 - 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.
AB - 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.
KW - Forward premium
KW - Power markets
KW - Regime-switching models
KW - Spot price modeling
UR - http://www.scopus.com/inward/record.url?scp=35449003134&partnerID=8YFLogxK
U2 - 10.1016/j.jbankfin.2007.04.011
DO - 10.1016/j.jbankfin.2007.04.011
M3 - Article
AN - SCOPUS:35449003134
SN - 0378-4266
VL - 31
SP - 3462
EP - 3485
JO - Journal of Banking and Finance
JF - Journal of Banking and Finance
IS - 11
ER -