Modelling the Impact of Wind Power Production on Electricity Prices by Regime-Switching Levy Semistationary Processes

16 Pages Posted: 9 Feb 2015

See all articles by Almut Veraart

Almut Veraart

Imperial College London; CREATES

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

Suggested Citation

Veraart, Almut, Modelling the Impact of Wind Power Production on Electricity Prices by Regime-Switching Levy Semistationary Processes (February 7, 2015). Available at SSRN: https://ssrn.com/abstract=2561901 or http://dx.doi.org/10.2139/ssrn.2561901

Almut Veraart (Contact Author)

Imperial College London ( email )

Department of Mathematics
180 Queen's Gate
London, SW7 2AZ

CREATES ( email )

Aarhus University
DK-8000 Aarhus C
Denmark

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