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Multivariate probabilistic forecasting of electricity prices with trading applications

Author

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  • Agakishiev, Ilyas
  • Härdle, Wolfgang Karl
  • Kopa, Milos
  • Kozmik, Karel
  • Petukhina, Alla

Abstract

This study extends recently introduced neural networks approach, based on a regularized distributional multilayer perceptron (DMLP) technique for a multivariate case electricity price forecasting. The performance of a fully connected architecture and a LSTM architecture of neural networks are tested. Different from previous studies we incorporate dependence between multiple exchanges (EPEX and Nord Pool). The empirical data application analyzes two auctions in the day-ahead electricity market for the United Kingdom market. Along with statistical evaluation of probabilistic forecasts we develop a flexible bidding strategy based on risk-adjusted investor utility function. The trading application leverages the differences of the two exchanges by having long/short positions in both. Our findings demonstrate while DMLP shows similar performance compared to the benchmarks, the algorithm is considerably less computationally costly. LASSO Quantile Regression is better in terms if statistical evaluation of distributional fit, while DMLP outperforms in terms of Sharpe ratio (by 18%) in the trading application.

Suggested Citation

  • Agakishiev, Ilyas & Härdle, Wolfgang Karl & Kopa, Milos & Kozmik, Karel & Petukhina, Alla, 2025. "Multivariate probabilistic forecasting of electricity prices with trading applications," Energy Economics, Elsevier, vol. 141(C).
    • Handle: RePEc:eee:eneeco:v:141:y:2025:i:c:s0140988324007163
    DOI: 10.1016/j.eneco.2024.108008
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    More about this item

    Keywords

    Electricity market; Distributional modeling; Simulation; Trading strategies; Probabilistic forecasting;
    All these keywords.

    JEL classification:

    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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