Journal
ENERGY ECONOMICS
Volume 78, Issue -, Pages 267-277Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.eneco.2018.10.016
Keywords
alpha-Stable process; CARMA model; Electricity prices; Futures prices; Markov chain Monte Carlo; Seasonality; Stable density approximation
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We develop a Bayesian estimation procedure for the electricity spot price model in Benth et al. (2014). This model incorporates a trend and seasonality component, a stable CARMA process for the price spikes, and an additional Levy process for mid-range price level changes. Our MCMC algorithm has two advantages over the existing stepwise estimation procedure presented in Benth et al. (2014): First, since our algorithm produces samples from the full posterior distribution over all parameters, we can estimate the parameters much more accurately, which is shown in simulation studies. Second, we can provide accuracy measures as credibility intervals in addition to the point estimates. The approach is quite general, so that it can be adapted also to other similar pricing models. For illustration, we analyse spot and future prices from the EEX using the new Bayesian method and provide estimates for the risk premium together with credibility regions. (C) 2018 Elsevier B.V. All rights reserved.
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