An hour-ahead prediction model for heavy-tailed spot prices

TY - JOUR

T1 - An hour-ahead prediction model for heavy-tailed spot prices

AU - Kim, Jae Ho

AU - Powell, Warren B.

PY - 2011/11/1

Y1 - 2011/11/1

N2 - We propose an hour-ahead prediction model for electricity prices that capture the heavy tailed behavior that we observe in the hourly spot market in the Ercot (Texas) and the PJM West hub grids. We present a model according to which we separate the price process into a thin-tailed trailing median process and a heavy-tailed residual process whose probability distribution can be approximated by a Cauchy distribution. We show empirical evidence that supports our model.

AB - We propose an hour-ahead prediction model for electricity prices that capture the heavy tailed behavior that we observe in the hourly spot market in the Ercot (Texas) and the PJM West hub grids. We present a model according to which we separate the price process into a thin-tailed trailing median process and a heavy-tailed residual process whose probability distribution can be approximated by a Cauchy distribution. We show empirical evidence that supports our model.

KW - Electricity spot market

KW - Heavy-tail

KW - Mean-reversion

KW - Median-reversion

UR - http://www.scopus.com/inward/record.url?scp=80755146034&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=80755146034&partnerID=8YFLogxK

U2 - https://doi.org/10.1016/j.eneco.2011.06.007

DO - https://doi.org/10.1016/j.eneco.2011.06.007

M3 - Article

SN - 0140-9883

VL - 33

SP - 1252

EP - 1266

JO - Energy Economics

JF - Energy Economics

IS - 6

ER -