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Modeling the return and volatility of the Greek electricity marginal system price

Theodorou, P. and Karyampas, Dimitrios (2008) Modeling the return and volatility of the Greek electricity marginal system price. Energy Policy 36 (7), pp. 2601-2609. ISSN 0301-4215.

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Official URL: http://dx.doi.org/10.1016/j.enpol.2008.03.009

Abstract

Traditional cost based optimization models (WASP) for expansion planning do not allow for mark-to-market valuation and cannot satisfy arbitrage free requirements. This work will fill this gap by developing and estimating models for mark-to-market valuation. Furthermore the present paper examines the return and volatility of the newly born Greek's electricity market's marginal system price. A detailed description of the market mechanism and regulation is used to describe how prices are determined in order to proceed with return and volatility modeling. Continuous time mean reverting and time varying mean reverting stochastic processes have been solved in discrete time processes and estimated econometrically along with ARMAX and GARCH models. It was found that GARCH model gave much better estimation and forecasting ability. Strong persistence in mean has been found giving suspicions of market inefficiency and strong incentives for arbitrage opportunities. Finally, the change in the regulatory framework has been controlled and found to have significant impact.

Item Type: Article
Keyword(s) / Subject(s): Energy markets, volatility and return modeling
School or Research Centre: Birkbeck Schools and Research Centres > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
Depositing User: Administrator
Date Deposited: 28 Jul 2011 14:34
Last Modified: 17 Apr 2013 12:21
URI: http://eprints.bbk.ac.uk/id/eprint/3909

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