Regime-switching characterization of electricity prices dynamics |
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| Institution: | 1. CEG-IST, Centre for Management Studies of IST, Instituto Superior Técnico, Universidade de Lisboa, Avenida Rovisco Pais, 1049-001 Lisboa, Portugal;2. Department of Production Engineering (TEP), Universidade Federal Fluminense, Rua Passo da Pátria 156, São Domingos, 24210-240 Niterói, Rio de Janeiro, Brazil;3. Department of Production Engineering (VEP), Universidade Federal Fluminense, Av. dos Trabalhadores 420, 27255-125 Volta Redonda, Rio de Janeiro, Brazil |
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| Abstract: | Stochastic models of electricity prices have been used extensively during the last few years to describe prices fluctuations in deregulated power markets. Regime-switching models seem good candidates to capture the main features of electricity prices dynamics as the mean-reversion property as well the presence of jumps and spikes. Since they offer the possibility to introduce various mean-reversion rates, volatility and jumps, depending on the state of the system, such models allow to describe the properties of the stable motion and of the spike dynamics in a very flexible way. In this paper, two-regime and three-regime models are discussed, and a comparison performed on market data, is proposed. |
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