Modelling the Impact of Wind Power Production on Electricity Prices by Regime-Switching Levy Semistationary Processes
16 Pages Posted: 9 Feb 2015
Date Written: February 7, 2015
Abstract
This paper studies the impact of wind power production on electricity prices in the European energy market. We propose a new modelling framework based on so-called regime-switching Levy semimstationary processes to account for forward-looking information consisting of predicted wind power generation. We show that our new regime-switching model, where the regime switch depends on the so-called wind penetration index, can describe recent electricity price data very well.
Keywords: Levy semistationary processes, regime switch, stochastic volatility, CARMA processes, generalised hyperbolic distribution, energy markets, electricity prices
JEL Classification: C10, G10
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