Modelling electricity prices with forward looking capacity constraints
Cartea, Alvaro and Figueroa, M.G. and Geman, Hélyette (2009) Modelling electricity prices with forward looking capacity constraints. Applied Mathematical Finance 16 (2), pp. 103-122. ISSN 1466-4313.
We present a spot price model for wholesale electricity prices which incorporates forward looking information that is available to all market players. We focus on information that measures the extent to which the capacity of the England and Wales generation park will be constrained over the next 52 weeks. We propose a measure of 'tight market conditions', based on capacity constraints, which identifies the weeks of the year when price spikes are more likely to occur. We show that the incorporation of this type of forward looking information, not uncommon in electricity markets, improves the modelling of spikes (timing and magnitude) and the different speeds of mean reversion.
|Keyword(s) / Subject(s):||Capacity constraints, mean reversion, electricity indicated demand, electricity indicated generation, regime switching model|
|School:||Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics|
|Research Centre:||Commodities Finance Centre|
|Date Deposited:||01 Feb 2011 09:53|
|Last Modified:||07 Dec 2016 15:31|
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