Volatility of electricity prices has been often estimated through GARCH-type models which can be strongly affected by the presence of extreme observations. Although the presence of spikes is a well-known stylized effect observed on electricity markets, robust volatility estimators have not been applied so far. In this paper we try to fill this gap by suggesting a robust procedure to the study of the dynamics of electricity prices. The conditional mean of de-trended and seasonally adjusted prices is modeled through a robust estimator of SETAR processes based on a polynomial weighting function while a robust GARCH is used for the conditional variance. The robust GARCH estimator relies on the extension of the forward search by Crosato and Grossi. The robust SETAR-GARCH model is applied to the Italian day-ahead electricity market using data in the period spanning from 2013 to 2015.

Forecasting the Volatility of Electricity Prices by Robust Estimation: An Application to the Italian Market

Grossi, Luigi;Nan, Fany
2018-01-01

Abstract

Volatility of electricity prices has been often estimated through GARCH-type models which can be strongly affected by the presence of extreme observations. Although the presence of spikes is a well-known stylized effect observed on electricity markets, robust volatility estimators have not been applied so far. In this paper we try to fill this gap by suggesting a robust procedure to the study of the dynamics of electricity prices. The conditional mean of de-trended and seasonally adjusted prices is modeled through a robust estimator of SETAR processes based on a polynomial weighting function while a robust GARCH is used for the conditional variance. The robust GARCH estimator relies on the extension of the forward search by Crosato and Grossi. The robust SETAR-GARCH model is applied to the Italian day-ahead electricity market using data in the period spanning from 2013 to 2015.
978-3-319-89823-0
Italian electricity market
Robust forecasting
Forward search
SETAR models
File in questo prodotto:
Non ci sono file associati a questo prodotto.

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11562/988789
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus ND
  • ???jsp.display-item.citation.isi??? ND
social impact