Measuring long-range dependence in electricity prices

Abstract

Summary. The price of electricity is far more volatile than that of other commodities normally noted for extreme volatility. The possibility of extreme price movements increases the risk of trading in electricity markets. However, underlying the process of price returns is a strong mean-reverting mechanism. We study this feature of electricity returns by means of Hurst R/S analysis, Detrended Fluctuation Analysis and periodogram regression.

Market price of risk implied by Asian-style electricity options and futures

“…Finally, energy spot prices are in general regarded to be mean reverting (Pindyck, 1999). Among all financial time series spot electricity prices are perhaps the best example of antipersistent data (Huisman et al, 2007;Park et al, 2006;Simonsen, 2003;Weron, 2002). Importantly, these results are not an artifact of the seasonality nor the spikes.…”

When the market becomes inefficient: Comparing BRIC markets with markets in the USA

“…The expected value of rescaled range E R S À Á n À Á as proposed by Peters (1994) may work as a reference series for generating the expected Hurst exponent. In the line of Peters (1994), Weron (2002) and Sanchez Granero, Trinidad Segovia, and Garcia Perez (2008) proposed following formula for estimating E R S À Á n À Á :…”

Approximate record length constraints for experimental identification of dynamical fractals

“…For example, the usefulness of the foregoing random walk view notwithstanding -it underlies the Black-Scholes options pricing model, for instance -both the model and the efficient market hypothesis to which it is related are known to be significantly incomplete descriptions of stock market dynamics. Additionally, the fractal characteristics of commodity markets have been less exhaustively studied, and work on electricity prices in deregulated markets, for instance, suggests that they may follow a different model [25]. Another question might be whether, for a given stock just introduced to the market, its volatility is fractal right out of the starting gate, or some spin-up required.…”