Economics Seminar: Analysis and Forecasting of Electricity Prices Risks with Quantile Factor Models

When?

Wednesday 21 November 2012, 16:00 to 17:30

Where?

40 AD 00

Open to:

Alumni, Public, Staff, Students

Speaker:

Dr. Sjur Westgaard (Norwegian University of Science and Technology)

Dr. Sjur Westgaard (Norwegian University of Science and Technology)

"Analysis and Forecasting of Electricity Prices Risks with Quantile Factor Models" 

Abstract

Forecasting quantile and value-at-risk levels for spot electricity prices is methodologically challenging because of the distinctive stochastic properties of the price density functions, volatility clustering and various exogenous factors. Despite this, accurate risk measures have considerable value in energy trading and risk management with the topic being actively researched for better techniques. We approach the problem by using a novel multifactor, dynamic, quantile regression formulation, extended to include GARCH properties. This captures the specification effects of mean reversion, spikes, time varying volatility and demonstrates how the prices of gas, coal and carbon, forecasts of demand and reserve margin in addition to price volatility influence the peak price quantiles for GB power. We show how the price elasticities for these factors vary substantially across the quantiles. We also show that a structural linear quantile regression model outperforms and easier to implement than state-of-the-art benchmark models for out-of-sample forecasts of value-at-risk.