Journal
QUANTITATIVE FINANCE
Volume 4, Issue 1, Pages 109-122Publisher
ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD
DOI: 10.1088/1469-7688/4/1/010
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In this paper, we analyse the evolution of prices in deregulated electricity markets. We present a general model that simultaneously takes into account the following features: seasonal patterns, price spikes, mean reversion, price dependent volatilities and long term non-stationarity. We estimate the parameters of the model using historical data from the European Energy Exchange. Finally, we demonstrate how it can be used for pricing derivatives via Monte Carlo simulation.
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