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
N1 - Funding Information:
Menn’s research was supported by the German Academic Exchange Service (DAAD), Rachev gratefully acknowledges research support by grants from Division of Mathematical, Life and Physical Sciences, College of Letters and Science, University of California, Santa Barbara, the German Research Foundation (DFG) and the German Academic Exchange Service (DAAD). We would like to thank seminar participants at various Universities and Conferences for their valuable suggestions and helpful comments. All errors remain our own.
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 -