IDEAS home Printed from https://ideas.repec.org/a/taf/apmtfi/v20y2013i1p69-93.html
   My bibliography  Save this article

Joint Modelling of Gas and Electricity Spot Prices

Author

Listed:
  • Noufel Frikha
  • Vincent Lemaire

Abstract

The recent liberalization of electricity and gas markets has resulted in the growth of energy exchanges and modelling problems. In this article, we jointly model gas and electricity spot prices using a mean-reverting model that fits the correlation structures for the two commodities. The dynamics are based on Ornstein processes with parameterized diffusion coefficients. Moreover, using the empirical distributions of the spot prices, we derive a class of such parameterized diffusions that captures the most salient statistical properties: stationarity, spikes and heavy-tailed distributions. The associated calibration procedure is based on standard and efficient statistical tools. We calibrate the model on French market for electricity and on UK market for gas, and then we simulate some trajectories that reproduce well the observed prices behaviour. Finally, we illustrate the importance of the correlation structure and of the presence of spikes by measuring the risk on a power plant portfolio.

Suggested Citation

  • Noufel Frikha & Vincent Lemaire, 2013. "Joint Modelling of Gas and Electricity Spot Prices," Applied Mathematical Finance, Taylor & Francis Journals, vol. 20(1), pages 69-93, March.
    • Handle: RePEc:taf:apmtfi:v:20:y:2013:i:1:p:69-93
    DOI: 10.1080/1350486X.2012.658220
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/1350486X.2012.658220
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/1350486X.2012.658220?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Deschatre, Thomas & Féron, Olivier & Gruet, Pierre, 2021. "A survey of electricity spot and futures price models for risk management applications," Energy Economics, Elsevier, vol. 102(C).
    2. Farshid Mehrdoust & Idin Noorani, 2023. "Valuation of Spark-Spread Option Written on Electricity and Gas Forward Contracts Under Two-Factor Models with Non-Gaussian Lévy Processes," Computational Economics, Springer;Society for Computational Economics, vol. 61(2), pages 807-853, February.
    3. Thomas Deschatre & Olivier F'eron & Pierre Gruet, 2021. "A survey of electricity spot and futures price models for risk management applications," Papers 2103.16918, arXiv.org, revised Jul 2021.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:apmtfi:v:20:y:2013:i:1:p:69-93. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAMF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.