Joint Modelling of Gas and Electricity Spot Prices

DOI10.1080/1350486X.2012.658220zbMATH Open1457.91278arXiv0910.0236MaRDI QIDQ3176519FDOQ3176519

Noufel Frikha, V. Lemaire

Publication date: 20 July 2018

Published in: Applied Mathematical Finance (Search for Journal in Brave)

Abstract: The recent liberalization of the electricity and gas markets has resulted in the growth of energy exchanges and modelling problems. In this paper, we modelize jointly gas and electricity spot prices using a mean-reverting model which fits the correlations structures for the two commodities. The dynamics are based on Ornstein processes with parameterized diffusion coefficients. Moreover, using the empirical distributions of the spot prices, we derive a class of such parameterized diffusions which captures the most salient statistical properties: stationarity, spikes and heavy-tailed distributions. The associated calibration procedure is based on standard and efficient statistical tools. We calibrate the model on French market for electricity and on UK market for gas, and then simulate some trajectories which reproduce well the observed prices behavior. Finally, we illustrate the importance of the correlation structure and of the presence of spikes by measuring the risk on a power plant portfolio.

Full work available at URL: https://arxiv.org/abs/0910.0236

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zbMATH Keywords

stochastic differential equationsaddlepoint approximationelectricity marketsergodic diffusionspot price modelling

Mathematics Subject Classification ID

Economic models of real-world systems (e.g., electricity markets, etc.) (91B74) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Microeconomic theory (price theory and economic markets) (91B24)

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Cited In (1)

• Electricity price modeling and asset valuation: a multi-fuel structural approach

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