European Business Schools Librarian's Group

ESSEC Working Papers,
ESSEC Research Center, ESSEC Business School

No DR 03004: A Class of Marked Point Processes for Modelling Electricity Prices

Hélyette Geman () and Andrea Roncoroni ()
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Hélyette Geman: ESSEC Business School, Postal: Avenue Bernard Hirsch - B.P. 105, 95021 CERGY-PONTOISE CEDEX , FRANCE
Andrea Roncoroni: ESSEC Business School, Postal: Avenue Bernard Hirsch - B.P. 105, 95021 CERGY-PONTOISE CEDEX , FRANCE

Abstract: This paper presents a family of processes to model electricity spot prices in deregulated markets. Besides mean-reversion, a property they share with other comodities, power prices exhibit the unique feature of spikes in trajectories. We introduce a class of discontinuous processes exhibiting a « jump-reversion » component to properly represent these sharp upward moves shortly followed by drops of similar magnitude. Our approach allows to capture – for the first time to our knowledge – both the trajectorial and statistical properties of electricity pool prices. The quality of the fitting is illustrated on a database of major US power markets.

Keywords: electricity prices; deregulated market; price risk; statistical models; US power markets

JEL-codes: D43; G13; L94; Q41

69 pages, March 2003

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