a generalized schwartz model for energy spot prices estimation using a particle mcmc method we propose an energy spot price model featuring a two factor price process and a two component stochastic volatility process the first factor in the price process captures the normal variations the second accounts for spikes the two component volatility allows for a flexible autocorrelation structure instead of using various filtering techniques for splitting the two factors as often found in the literature we estimate the model in one step using an adaptive mcmc method with a rao blackwellized particle filter we fit the model to uk natural gas spot prices and investigate the importance of spikes and stochastic volatility we find that the inclusion of stochastic volatility is crucial and that it strongly impacts the jump intensity in the spike process furthermore our estimation method enables us to consider both continuous and purely jump driven volatility processes and thereby assess if the volatility specification also influences the spike process and the overall model fit

time varying convergence in european electricity spot markets and their association with carbon and fuel prices abstract long run dynamics of electricity prices are expected to reflect fuel price developments since fuels generally account for a large share in the cost of generation as an integrated european market for electricity develops wholesale electricity prices should be converging as a result of market coupling and increased interconnectivity electricity mixes are also changing spurred by a drive to significantly increase the share of renewables consequently the electricity wholesale price dynamics are evolving and the fuel electricity price nexus that has been described in the literature is likely to reflect this evolution this study investigates associations between spot prices from the british french and nordpool markets with those in connected electricity markets and fuel input prices from december 2005 to october 2013 in order to assess the time varying dynamics of electricity spot price series localized autocorrelation functions are used electricity spot prices in the three markets are found to have stationary and non stationary periods when a trend in spot prices is observed it is likely to reflect the trend in fuel prices cointegration analysis is then used to assess co movement between electricity spot prices and fuel inputs to generation the results show that british electricity spot prices are associated with fuel prices and not with price developments in connected markets while the opposite is observed in the french and nordpool day ahead markets

the crucial relationship among energy commodity prices evidence from the spanish electricity market the main purpose of this article is twofold to analyze a the long term relation among the commodities prices and between spot electricity market price and commodity prices and b the short term dynamics among commodity prices and between electricity prices and commodity prices data between 2002 and 2005 from the spanish electricity market was used econometric methods were used in the analysis of the commodity spot price namely the vector autoregression model the vector error correction model and the granger causality test the co integration approach was used to analyze the long term relationship between the common stochastic trends of four fossil fuel prices one of the findings in the long term relation is that the prices of fuel and the prices of brent are intertwined though the prices of brent ten to move to reestablish the price equilibrium another finding is that the price of electricity is explained by the evolution of the natural gas series

when supply meets demand the case of hourly spot electricity prices we use a supply demand framework to model the hourly day ahead price of electricity the spot price based on publicly available information with the model we can forecast the level and probability of a spike in the spot price defined as the spot price above a certain threshold several european countries have recently started publishing day ahead forecasts of the available supply this paper shows this forecasted capacity is quite successful in predicting spot price movements 24 h ahead

combining day ahead forecasts for british electricity prices abstract this paper considers how well the approach of combining forecasts extends to the context of electricity prices with the increasing popularity of regime switching and time varying parameter models for predicting power prices the multi model and evolutionary considerations that usually support the combining of simpler time series methods may be less applicable when the individual models incorporate these features we address this question with a backtesting analysis on british day ahead prices furthermore given the volatility of power prices and concerns about accurate forecasting under extreme price excursions we evaluate the results using various error metrics including expected shortfall the comparisons are furthermore carefully simulated to consider model selection uncertainty in order to realistically test the value of combining as an ex ante policy overall our results support combining for both accurate operational planning and risk management

oil and gas markets in the uk evidence from a cointegrating approach the paper examines the relationship between uk wholesale gas prices and the brent oil price over the period 1996 2003 in order to investigate whether oil and gas prices decoupled during this period as orthodox gas market liberalisation theory suggests tests for unit roots and cointegration are carried out and it is discovered that a long run equilibrium relationship between uk gas and oil prices exists moreover this relationship pre dates the opening of the uk mainland europe interconnector following a recursive methodology hansen h and johansen s 1999 some tests for parameter constancy in cointegrated var models econometrics journal 2 306 333 it was found that the cointegrating relationship is present throughout the sample period however the long run solutions seem to be more volatile evidence is provided that the short run relationship is linear and impulse response functions are used to examine the effects that a shock in oil would have on gas these findings do not support the assumption that gas prices and oil prices decouple

fitting semiparametric markov regime switching models to electricity spot prices abstract recently regime switching models have become the standard tool for modeling electricity prices these models capture the main properties of electricity spot prices well but estimation of the model parameters requires computer intensive methods moreover the distribution of the price spikes must be fully specified although the high volatility of the spikes makes it difficult to check such distributional assumptions consequently there are a number of competing proposals for the distribution in the spike regime as an alternative we propose a semiparametric markov regime switching model that leaves the distribution under the spike regime unspecified we show that the model parameters can be estimated by employing robust statistical techniques this presents an alternative to the existing estimation methods that are based on computer intensive numerical maximization of the likelihood function the model in combination with the estimation framework is easier to estimate needs less computation time and distributional assumptions to show its advantages we compare the proposed model with a well established markov regime switching model in a simulation study furthermore we apply the model to log prices for the australian electricity market the results are in accordance with the results from the simulation study indicating that the proposed model might be advantageous whenever the distribution of the spike process is not sufficiently known the results are thus encouraging and suggest the use of our approach when modeling electricity prices and pricing derivatives

the influence of temperature on spike probability in day ahead power prices it is well known that day ahead prices in power markets exhibit spikes and time varying volatility spikes and extremely high volatility are the results of short term frictions in demand and or supply conditions it is known that information on load or the reserve margin help to forecast spikes however these variables are not timely available for every market participant and this paper suggests to use temperature as a proxy interpreting the results from several switching regimes models the paper shows that the probability of spike occurrence increases when temperature deviates substantially from mean temperature levels

jump processes in natural gas markets abstract many analysts believe that natural gas will have an increasingly important role in the next few decades accordingly understanding the underpinnings of natural gas prices is likely to be critical both to policy analysts and to market participants at present it is common to assume that these prices follow a geometric brownian motion i e that log returns the inter temporal differences in the natural log of prices are normally distributed possibly allowing for some form of mean reversion increasingly however it has been recognized that the arrival of new information can lead to unexpectedly rapid changes or jumps in spot prices the implication is that the presumption of normally distributed log returns may be suspect in particular the prospect for abnormally fat tails becomes important this article investigates the potential presence of jumps in two key natural gas prices the spot price at the henry hub in the u s and the spot price for natural gas at the national balancing point in the u k we found compelling empirical evidence for the importance of jumps in both markets though jumps appear to be more important in the u k

road transport externalities during the last decade much progress has been made in defining measuring the external costs of transport as the cost of tolling equipment falls the set of realistic policy options to internalise these externalities will continue to grow this will determine the research and policy agenda we make three points firstly empirical work is still necessary to better identify marginal external costs including congestion accident and environmental costs secondly any assessment of policy options should treat externalities simultaneously the use of pricing instruments and emissions standards are discussed within this framework thirdly we emphasise the role of government designing the optimal road pricing institutions requires consideration of horizontal and vertical tax competition while double dividend arguments are central to the question of securing public support

analyzing the impact of futures trading on spot price volatility evidence from the spot electricity market in france and germany abstract this paper examines the impact of the introduction of electricity futures on the spot price volatility of the french powernext and german eex electricity markets as well as the degree of their price correlation over the period 2002 2011 our working hypotheses were tested based on a bivariate vecm garch model the results indicate that the introduction of futures contracts in the french electricity market as well as the launch of the joint futures market in these countries in 2009 has decreased spot price volatility however this effect was not as explicit for the german market due to data specificities other interesting results are the german market dominates and leads the long run price relationship the impact of cooling needs on demand is greater than the impact of heating needs there is a substantial systematic pattern of electricity prices and their respective volatilities during weekdays and holidays overall results are supportive of policy making at the european commission regarding electricity market integration

price dynamics among u s electricity spot markets combining recent advances in causal flows with time series analysis relationships among 11 u s spot market electricity prices are examined results suggest that the relationships among the markets vary by time frame in contemporaneous time the western markets are separated from the eastern markets and the electricity reliability council of texas at longer time frames these separations disappear even though electricity transmission between the regions is limited it appears the relationships among markets are not only a function of physical assets such as transmissions lines among markets but by similar and dissimilar institutional arrangements among the markets

volatility transmission and volatility impulse response functions in european electricity forward markets using daily data from march 2001 to june 2005 we estimate a var bekk model and find evidence of return and volatility spillovers between the german the dutch and the british forward electricity markets we apply hafner and herwartz 2006 journal of international money and finance 25 719 740 volatility impulse response function virf to quantify the impact of shock on expected conditional volatility we observe that a shock has a high positive impact only if its size is large compared to the current level of volatility the impact of shocks are usually not persistent which may be an indication of market efficiency finally we estimate the density of the virf at different forecast horizon these fitted distributions are asymmetric and show that extreme events are possible even if their probability is low these results have interesting implications for market participants whose risk management policy is based on option prices which themselves depend on the volatility level

electricity portfolio management optimal peak off peak allocations electricity purchasers manage a portfolio of contracts in order to purchase the expected future electricity consumption profile of a company or a pool of clients this paper proposes a mean variance framework to address the concept of structuring the portfolio and focuses on how to optimally allocate positions in peak and off peak forward contracts it is shown that the optimal allocations are based on the difference in risk premiums per unit of day ahead risk as a measure of relative costs of hedging risk in the day ahead markets the outcomes of the model are then applied to show i that it is typically not optimal to hedge a baseload consumption profile with a baseload forward contract and ii that under reasonable assumptions risk taking by the purchaser is rewarded by lower expected costs

pricing and congestion economic principles relevant to pricing roads u k expenditures on roads or road costs average l4 34 billion per year from the 24 6 million vehicles registered road taxes of l12 7 billion were collected 2 9 times road costs from 1978 88 the average daily traffic on each km of road rose by 34 percent with a consequent serious increase in congestion road space is a valuable and scarce resource and road users should logically pay the marginal social cost if they are to make efficient transport and location decisions the paper estimates these costs and the appropriate charges for britain and identifies the major policy issues total road charges ignoring hard to quantify accident costs should yield l13 8 billion of which congestion charges would be l12 8 billion though close to road taxes in total amount replacing current taxes by road pricing would reduce congestion improve public transport and avoid perverse consequences from road expansion copyright 1990 by oxford university press

how regimes affect asset allocation international equity returns are characterized by episodes of high volatility and unusually high correlations coinciding with bear markets this article provides models of asset returns that match these patterns and illustrates their use in asset allocation the presence of regimes with different correlations and expected returns is difficult to exploit within a framework focused on global equities nevertheless for global all equity portfolios the regime switching strategy dominated static strategies in an out of sample test in addition substantial value was added when an investor switched between domestic cash bonds and equity investments in a persistent high volatility market the model told the investor to switch primarily to cash large market timing benefits are possible because high volatility regimes tend to coincide with periods of relatively high interest rates

electricity prices large scale renewable integration and policy implications abstract this paper investigates the effects of intermittent solar and wind power generation on electricity price formation in germany we use daily data from 2010 to 2015 a period with profound modifications in the german electricity market the most notable being the rapid integration of photovoltaic and wind power sources as well as the phasing out of nuclear energy in the context of a garch in mean model we show that both solar and wind power granger cause electricity prices that solar power generation reduces the volatility of electricity prices by scaling down the use of peak load power plants and that wind power generation increases the volatility of electricity prices by challenging electricity market flexibility

the value of transport safety recent years have witnessed an increasing tendency for public sector and related agencies to reject the traditional but poorly founded lost output approach to the valuation of transport safety in favor of the altogether more defensible willingness to pay approach the purpose of this paper is to examine some of the more significant implications of this revolution in the way in which transport safety is evaluated in particular the paper outlines the case in favor of the willingness to pay approach summarizes the results of empirical work in this area and examines the allocative implications of adopting the kind of values that emerge from such empirical work the paper then considers the extent to which road risks can be regarded as externalities assesses the implications of asymmetries in the treatment of safety on various different transport modes in the u k and finally proposes an agenda for future research in the economics of transport safety copyright 1990 by oxford university press

an analysis of the decline of electricity spot prices in europe who is to blame abstract the european electricity markets are going through a phase of agitating transition which is shaped by different key factors such as the expansion of renewable energies the changes in the eu carbon trading scheme and the european market integration in addition markets are affected by the volatile prices of primary energy carriers e g gas and coal the development of these different factors led to a decline of german wholesale electricity prices of almost 40 from about 51 mwh in 2011 to 31 mwh in 2015 the goal of this study is to analyze the contribution of different price drivers to this decline thus an agent based modeling and a regression approach are applied to investigate the effect of price drivers and to verify model results by comparing both approaches our results show that against the public perception the impact of carbon and coal prices on german electricity prices has been twice as high as the renewable expansion between 2011 and 2015 furthermore if carbon and coal prices do not recover to at least the level of 2011 electricity prices will remain on the current low level complicating the economic operation of gas power plants

heterogeneous price dynamics in u s regional electricity markets abstract the u s electricity wholesale market is organized in several deregulated regional markets this paper compares price dynamics of electricity in the u s wholesale markets and shows that electricity prices from the west and east coasts have different regime dynamics our methodology suggests that electricity prices are better parameterized by four regimes with different levels of volatility additionally west and east coast markets differ in the time spent in each regime the extremely high volatility regime describes west coast prices during the california electricity crisis but east coast prices are also frequent in that regime we find evidence of synchronization of price dynamics in the mean reverting and highest volatility regimes i e prices from the east and west coasts tend to be in the same regimes at the same time

hourly electricity prices in day ahead markets this paper focuses on the characteristics of hourly electricity prices in day ahead markets in these markets quotes for day ahead delivery of electricity are submitted simultaneously for all hours in the next day the same information set is used for quoting all hours of the day the dynamics of hourly electricity prices does not behave as a time series process instead these prices should be treated as a panel in which the prices of 24 cross sectional hours vary from day to day this paper introduces a panel model for hourly electricity prices in day ahead markets and examines their characteristics the results show that hourly electricity prices exhibit hourly specific mean reversion and that they oscillate around an hourly specific mean price level furthermore a block structured cross sectional correlation pattern between the hours is apparent

market reform and mortality in transition economies abstract the striking increase in mortality rates in russia in the early 1990s occurred simultaneously with the government s erratic attempts to introduce market reforms other transition economies such as poland and the czech republic avoided increases in death rates while they implemented rapid and deep reforms is there a link between mortality and the speed or depths of reforms as suggested by other researchers e g sachs 1996 american economic review 86 2 128 233 this paper uses aggregate data on 22 transition economies for 1989 1994 to investigate this question while the relationship between an index of reform progress and death rates is ambiguous death rates in these countries are correlated with measures of reform success such as gdp growth and the inflation rate higher crime rates and higher unemployment rates are also related to larger increases in death rates

spot and derivative pricing in the eex power market using spot and futures price data from the german eex power market we test the adequacy of various one factor and two factor models for electricity spot prices the models are compared along two different dimensions 1 we assess their ability to explain the major data characteristics and 2 the forecasting accuracy for expected future spot prices is analyzed we find that the regime switching models clearly outperform its competitors in almost all respects the best results are obtained using a two regime model with a gaussian distribution in the spike regime furthermore for short and medium term periods our results underpin the frequently stated hypothesis that electricity futures quotes are consistently greater than the expected future spot a situation which is denoted as contango

dependence structure in the australian electricity markets new evidence from regular vine copulae abstract in this study regular vine copula was used to investigate the dependence structure of electricity prices at the state level in the australian national electricity market nem during three periods related to the adoption and abolition of the carbon tax in the pre carbon period we found evidence of tail dependence separately in the northern and southern nem but not across them during the carbon period the joint spike in the northern nem disappeared and the tail dependence in the southern nem decreased in the post carbon period the best dependence structure turned out to be a flexible structure of the regular vine which exactly matches the geographical infrastructure connectedness of transmission wires besides both upper and lower tail dependences were found in all adjacent states after the abolition of the carbon tax suggesting a more integrated market regarding tail dependence our findings have substantial implications for risk management in the nem especially for those participants exposed to multiple states

regulation by prices quantities or both a review of instrument choice choosing appropriate policy instruments is an important part of successful regulation once objectives are agreed and suitable targets adopted policy makers can employ command and control regulation and or economic instruments and choose between fixing a price or a quantity this paper examines the relative advantages of price quantity and hybrid instruments according to their efficiency under uncertainty the trade off between credible commitment and flexibility implementation international considerations and political economy various illustrations of the theory are provided with two detailed applications to climate change and transport policy specifically congestion and safety pricing

a stochastic fuel switching model for electricity prices abstract this paper develops and applies a novel electricity price model we reproduce the merit order of a thermal dominated electricity system by establishing a non linear dependency of wholesale electricity prices on the prices of fuels coal and natural gas and of co 2 emission allowances the coefficients are estimated using a markov switching regression this approach might prove valuable for cross hedging positions in the fuel electricity and emission spot markets it is also of use for studying the degree to which electricity prices in different countries reflect fuel and emission cost applying the model to the electricity markets of the uk and germany we find that british electricity prices are quite well explained by short run cost factors while the german ones are less well explained

an empirical comparison of alternate regime switching models for electricity spot prices one of the most profound features of electricity spot prices are the price spikes markov regime switching mrs models seem to be a natural candidate for modeling this spiky behavior however in the studies published so far the goodness of fit of the proposed models has not been a major focus while most of the models were elegant their fit to empirical data has either been not examined thoroughly or the signs of a bad fit ignored with this paper we want to fill the gap we calibrate and test a range of mrs models in an attempt to find parsimonious specifications that not only address the main characteristics of electricity prices but are statistically sound as well we find that the most universal and robust structure is that of an independent spike 3 regime model with heteroscedastic diffusion type base regime dynamics and shifted spike regime distributions

long run relations in european electricity prices this paper analyses the interdependencies existing in wholesale electricity prices in six major european countries the results of a robust multivariate long run dynamic analysis reveal the presence of four highly integrated central european markets france germany the netherlands and austria the trend shared by these four electricity markets appears to be common also to gas prices but not to oil prices the existence of a common long term dynamics among electricity prices and between electricity prices and gas prices can be explained by the similarity of the market design across europe and by the same marginal generation technology since standard unit root and cointegration tests are not robust to the peculiar characteristics of electricity prices time series we also develop a battery of robust inference procedures that should assure the reliability of our results copyright 2009 john wiley sons ltd

demographic change in the former soviet union during the transition period abstract this paper examines patterns of mortality and other demographic changes across the former soviet union using regional data from the early 1990s a simultaneous equations model of fertility marriage divorce infant mortality and abortion is estimated as a function of economic and social variables the paper then looks at determinants of life expectancy and specific causes of death demographic scenarios are then forecast on the basis of specific economic environments these forecasts in turn are used to forecast life expectancies in the coming decades in plausible environments there is little reason to anticipate a rapid recovery in male or female life expectancies while further declines in fertility appear imminent

asymmetric volatility in european day ahead power markets a comparative microeconomic analysis this paper uses high frequency spot price data from fourteen wholesale electricity markets in europe to analyze asymmetric volatility in european day ahead power markets with exponential garch e garch and tarch models our data set ranges from 1992 to 2015 and consists of approximately 926 000 observations as such this paper constitutes the most extensive and comprehensive work conducted so far on european power markets to the best of our knowledge unlike most of the literature that treats price as a continuous variable and attempts to model its trajectory this paper adopts a unique approach and regards each hour in a day a separate market the results show in post 2008 period the most expensive electricity is consumed in turkey ireland and uk while the cheapest power is in russia nordic countries and czech republic russia poland and czech republic have the least volatile markets while france ireland and portugal have the most volatile ones volatility has decreased in many european countries in post 2008 period besides we find magnitude effect is usually larger than the leverage effect meaning that the absolute value of price change is relatively more important than the sign of the change whether it is an increase or a decrease to explain volatility in european day ahead power markets moreover the results imply there is not a uniform inverse leverage effect in electricity prices that is price increases are more destabilizing in some european markets e g poland slovenia ireland netherlands than comparable price decreases but vice versa also holds true in some other countries e g portugal and france leverage or inverse leverage effect in post 2008 period is relatively stronger in portugal france and ireland but its impact is quite limited in turkey and germany furthermore although the impact of seasonality on prices is obvious a specific pattern cannot be identified finally large changes in the volatility will affect future volatilities for a relatively longer period of time in nordic countries ireland and the uk while changes in current volatility will have less effect on future volatilities in czech republic russia and turkey

stochastic price modeling of high volatility mean reverting spike prone commodities the australian wholesale spot electricity market it is commonly known that wholesale spot electricity markets exhibit high price volatility strong mean reversion and frequent extreme price spikes this paper employs a basic stochastic model a mean reverting model and a regime switching model to capture these features in the australian national electricity market nem comprising the interconnected markets of new south wales queensland south australia and victoria daily spot prices from 1 january 1999 to 31 december 2004 are employed the results show that the regime switching model outperforms the basic stochastic and mean reverting models electricity prices are also found to exhibit stronger mean reversion after a price spike than in the normal period and price volatility is more than fourteen times higher in spike periods than in normal periods the probability of a spike on any given day ranges between 5 16 in nsw and 9 44 in victoria

modelling interregional links in electricity price spikes abnormally high price spikes in spot electricity markets represent a significant risk to market participants as such a literature has developed that focuses on forecasting the probability of such spike events moving beyond simply forecasting the level of price many univariate time series models have been proposed to dealwith spikes within an individual market region this paper is the first to develop a multivariate self exciting point process model for dealing with price spikes across connected regions in the australian national electricity market the importance of the physical infrastructure connecting the regions on the transmission of spikes is examined it is found that spikes are transmitted between the regions and the size of spikes is influenced by the available transmission capacity it is also found that improved risk estimates are obtained when inter regional linkages are taken into account

dynamics of persistence in international inflation rates characteristics of inflation play a key role in policy formulation and market analysis several studies have analyzed inflation persistence and reached diverging conclusions in this paper we investigate the dynamics of inflation persistence using fractionally integrated processes and find that there has been a clear decline in inflation persistence in the united states over the past two decades we also show that the presence of fractional integration in inflation successfully explains previous diverging results lastly we provide some international comparisons to examine the extent to which there has been a commensurate decline in inflation persistence in the other g7 economies

why do electricity prices jump empirical evidence from the nordic electricity market the paper empirically explores the possible causes behind electricity price jumps in the nordic electricity market nord pool a time series model a mixed garch earji jump model capturing the com

urban growth in developing countries a review of current trends and a caution regarding existing forecasts summary the purpose of this paper is to clarify the nature of the on going urban transition in developing countries the quality of the available data and the uncertainty of existing urban forecasts although the recently released united nations publication world urbanization prospects is an invaluable resource for those interested in studying urban change the data in the report are somewhat deceptive in their apparent completeness and beyond the narrow confines of technical demography there is a great deal of misunderstanding and misreporting about what these data mean and how they should be interpreted for example while the scale of urban change is unprecedented and the nature and direction of urban change is more dependent on the global economy than ever before many aspects of the traditional distinction between urban and rural are becoming redundant this paper provides a broad overview of the available evidence on patterns and trends in urban growth in developing countries highlighting regional differences where appropriate the paper also examines the quality of past urban population projections and finds that there has been considerable diversity in their quality by geographic region level of development and size of country 2003 elsevier ltd all rights reserved

hmm filtering and parameter estimation of an electricity spot price model abstract in this paper we develop a model for electricity spot price dynamics the spot price is assumed to follow an exponential ornstein uhlenbeck ou process with an added compound poisson process in this way the model allows for mean reversion and possible jumps all parameters are modulated by a hidden markov chain in discrete time they are able to switch between different economic regimes representing the interaction of various factors through the application of reference probability technique adaptive filters are derived which in turn provide optimal estimates for the state of the markov chain and related quantities of the observation process the em algorithm is applied to find optimal estimates of the model parameters in terms of the recursive filters we implement this self calibrating model on a deseasonalised series of daily spot electricity prices from the nordic exchange nord pool on the basis of one step ahead forecasts we found that the model is able to capture the empirical characteristics of nord pool spot prices

valuation anomalies for interconnector transmission rights whilst the acquisition of physical transmission interconnector rights between two or more electricity markets can be structured as spread options on the spot prices of electricity between connected markets empirical evidence suggests that actual prices may be quite different this raises issues for the valuation of transmission rights particularly in the european context of market harmonisation and the use of transmission rights with increasing levels of wind penetration we examine the price differentials between the irish and british electricity markets where explicit transmission capacity auctions have been persistently undersubscribed and transmission rights acquired but not fully utilised we find significant empirical indications that auction prices for transmission rights are undervalued against both arbitrage and spread option valuations we also find significant power flows against the efficient price spread direction a survey of a group of experts with an interest in trading power between ireland and britain inform a number of possible explanations for the apparent inefficiencies these include ex post pricing in the irish market intermittent wind and strategic behaviour by dominant firms

on transition probabilities of regime switching in electricity prices we analyze the transition probabilities of regime switching in electricity prices by explicitly incorporating the underlying demand supply structure we show that the transition probabilities of electricity prices cannot be constant and depend on both the current demand level relative to the supply capacity and the trends of demand fluctuation these results not only contrast with the assumption of constant transition probabilities on which many regime switching models are built but also provide new insights on the determinants of the state dependent transition probabilities of regime switching

regime shifts implications for dynamic strategies corrected regime shifts present significant challenges for investors because they cause performance to depart significantly from the ranges implied by long term averages of means and covariances but regime shifts also present opportunities for gain the authors show how to apply markov switching models to forecast regimes in market turbulence inflation and economic growth they found that a dynamic process outperformed static asset allocation in backtests especially for investors who seek to avoid large losses

market price of risk implied by asian style electricity options and futures in this paper we propose a jump diffusion type model which recovers the main characteristics of electricity spot price dynamics in the nordic market including seasonality mean reversion and spiky behavior we show how the calibration of the market price of risk to actively traded futures contracts allows for efficient valuation of nord pool s asian style options written on the spot electricity price furthermore we study the evolution of the market price of risk and the risk premium over a three year time period and compare the obtained results with those reported in the literature

regime switching based vehicle to building operation against electricity price spikes abstract electricity price may present very large spikes due to imbalance between generation and demand especially during heavily loaded periods such peak price may incur significant cost to building operation with the vehicle to building v2b technology electric vehicle battery can be used as temporal energy source for the building load for a short period which leads to a possible solution for reducing the energy cost during peak price periods in this paper the problem of reducing the energy cost due to the peak price is approached from the prospective of risk management a regime switching based risk management scheme is proposed for the v2b operation based on the availability of electric vehicles ev plugged in the parking lots attached to the building in the low risk regime the objective is to minimize the ev charging cost while in the high risk regime the objective is to reduce the potentially high energy cost due the peak price via the power stored in ev batteries based on markov regime switching model the operation minimizes the conditional value at risk involved simulation results show that the proposed framework can greatly reduce the energy cost against the electricity peak prices

road accidents and traffic flows an econometric investigation this paper develops an empirical model of the relationship between road traffic accidents and traffic flows the analysis focuses on the accident externality which is determined mainly by the difference between the marginal and average risks the model is estimated using a new data set which combines hourly london traffic count data from automated vehicle recorders together with police records of road accidents the accident flow relationship is seen to vary considerably between different road classes and geographical areas more importantly even having controlled for these and other differences the accident externality is shown to vary significantly with traffic flows in particular while the accident externality is typically close to zero for low to moderate traffic flows it increases substantially at high traffic flows

econometric modeling of regional electricity spot prices in the australian market abstract wholesale electricity markets are increasingly integrated via high voltage interconnectors and inter regional trade in electricity is growing to model this we consider a spatial equilibrium model of price formation where constraints on inter regional flows result in three distinct equilibria in prices we use this to motivate an econometric model for the distribution of observed electricity spot prices that captures many of their unique empirical characteristics the econometric model features supply and inter regional trade cost functions which are estimated using bayesian monotonic regression smoothing methodology a copula multivariate time series model is employed to capture additional dependence both cross sectional and serial in regional prices the marginal distributions are nonparametric with means given by the regression means the model has the advantage of preserving the heavy right hand tail in the predictive densities of price we fit the model to half hourly spot price data in the five interconnected regions of the australian national electricity market the fitted model is then used to measure how both supply and price shocks in one region are transmitted to the distribution of prices in all regions in subsequent periods finally to validate our econometric model we show that prices forecast using the proposed model compares favorably with those from some benchmark alternatives

electricity futures price models calibration and forecasting a new one factor model with a random volatility parameter is presented in this paper for pricing of electricity futures contracts it is shown that the model is more tractable than multi factor jump diffusion models and yields an approximate closed form pricing formula for the electricity futures prices on real market data it is shown that the performance of the new model compares favourably with two existing models in the literature viz a two factor jump diffusion model and its jump free version i e a two factor linear gaussian model in terms of ability to predict one day ahead futures prices further a multi stage procedure is suggested and implemented for calibration of the two factor jump diffusion model which alleviates the difficulty in calibration due to a large number of parameters and pricing formulae which involve numerical evaluation of integrals we demonstrate the utility of our new model as well as the utility of the calibration procedure for the existing two factor jump diffusion model by model calibration and price forecasting experiments on three different futures price data sets from nord pool electricity data for the jump diffusion model we also investigate empirically whether it performs better in terms of futures price prediction than a corresponding jump free linear gaussian model finally we investigate whether an explicit calibration of jump risk premium in the jump diffusion model adds value to the quality of futures price prediction our experiments do not yield any evidence that modelling jumps leads to a better price prediction in electricity markets

how renewable production depresses electricity prices evidence from the german market abstract the urgency of climate change has led several countries to develop renewable energy in order to reduce co2 emissions through the means of various subsidies in the electricity sector one drawback of such policies is the negative impact on electricity prices known as the merit order effect this paper aims at assessing how intermittent renewable production depresses electricity prices in germany which has experienced a significant increase of its renewable capacity over the last two decades to do so we use a two regime markov switching model that enables to disentangle the impact of wind and solar generation depending on the price being high or low we find as expected that renewable production induces a negative marginal effect which is stronger in regimes of relatively high prices in addition we show that both wind and solar productions have a significant impact on the distribution of prices and in particular on the frequency and expected duration of each regime this has implications in terms of market design security of supply and support mechanisms for renewables

the effects of renewables in space and time a regime switching model of the italian power price abstract renewable energy production can exercise a downward pressure on electricity prices by partly crowding out conventional units characterized by higher marginal costs merit order effect yet congestion induced by renewables would partly offset the merit order effect in the congested zone unless renewables reduce the need for imports and allow the emergence of prosumers these congestion effects of renewables are hereby jointly tested with the merit order effect by means of an endogenous regime switching model wherein a regime corresponds to the observable status congested non congested of the grid the model is taken to data from the italian power exchange observed in 2012 and 2013 with a focus on the line connecting sicily with the south zone a frequent bottleneck in the italian transmission grid the results confirm the merit order effect previously detected in the literature and highlight a negative congestion effect i e renewables relieve congestion from sicily a systematic importer but not from the italian peninsula the exporting region this effect is mainly driven by the wind power in feed

counterfactual comparisons of investment options for wind power and agricultural production in the united states lessons from northern ohio abstract we analyze potential efficiency gains in wind power projects by comparing counterfactual investment decisions in two different scenarios under a real options framework the first scenario is a standard wind power investment where the investor rents the land from local farms in the second scenario the wind power investor buys the land and commercializes both electricity and crop production thus reducing the revenue risk through the diversification both scenarios have a waiting option with the wholesale prices leading the installation decision we model the electricity price as a mean reverting process with jumps and with different jumping probabilities for the different seasons of the year corn prices follow a mean reverting process the waiting flexibility was modeled as a bundle of european options the results indicate that the waiting option is exercised in 100 of our simulations in both scenarios suggesting the still important role of government policies to stimulate wind power more importantly in more than 90 of the simulations the second scenario brought value to the investment furthermore net present values are more sensitive to reductions in capital costs than electricity prices these results can form the basis for more effective policies for the wind power sector

the microeconomic analysis of the external costs of road accidents a disaggregated model of the marginal external costs of road accidents imposed by different road users is developed the model explicitly specifies the adjustment of road users to increases in accident risks imposed by additional road use and is used to estimate the marginal external costs of road accidents the results under certain assumptions are up to 50 less than those obtained using the methods of previous studies however the adjustment to the increased risks of accidents leads to other costs such as congestion and reduced pedestrian mobility these costs should be included in a comprehensive analysis

regime jumps in electricity prices many countries are liberalizing their energy markets participants in these markets are exposed to market risk due to the characteristics of electricity price dynamics electricity prices are known to be mean reverting very volatile and subject to frequent spikes models that describe the dynamics of electricity prices should incorporate these characteristics in order to capture the price spikes many researchers have introduced stochastic jump processes but we argue and show that this specification might lead to potential problems with specifying the true amount of mean reversion within the process in this paper we propose a regime switching model that models price spikes separated from normal mean reverting prices

optimal portfolios in good times and bad recent experience with emerging market investments and hedge funds has highlighted the fact that risk parameters are unstable to address this problem we introduce a procedure for identifying multivariate outliers and use the outliers to estimate a new covariance matrix we suggest that a covariance matrix estimated from outliers characterizes a portfolio s riskiness during market turbulence better than a full sample covariance matrix we also introduce a procedure for blending an inside sample covariance matrix with one from an outlier sample this procedure enables one to express views about the likelihood of each risk regime and to differentiate one s aversion to them our framework collapses to the markowitz mean variance model if 1 we set the probabilities of the inside and outlying covariance matrixes equal to their empirical frequencies 2 we are equally averse to both risk regimes and 3 we estimate the inside and outlying covariances around the full sample s mean

an hour ahead prediction model for heavy tailed spot prices abstract 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

comparing alternative policies to reduce traffic accidents abstract this paper derives and implements formulas for the welfare effects of uniform mileage taxes gasoline taxes per mile insurance premiums and mileage taxes differentiated across vehicle and driver groups for reducing the external costs of passenger vehicle accidents the average external accident cost is estimated at 2 2 6 6 cents per mile accidents costs differ substantially across driver groups but only moderately across vehicles groups annual welfare gains from a mileage tax equal to marginal external costs for each driver vehicle group are 9 4 billion in the benchmark case the uniform mileage tax and per mile insurance reform can achieve 76 and 65 of this welfare gain respectively while the gasoline tax can achieve only 28 of the welfare gain unlike other policies the gasoline tax induces costly improvements in average fleet fuel economy that have little effect on reducing external costs

a history of european electricity day ahead prices in this article we examine the development of day ahead prices in five european markets which became more connected over recent years where previous studies examined the convergence of price levels over time we focus on patterns in estimates for the parameters in a switching regimes model this makes it possible to distinguish between prices under normal market conditions and under non normal market conditions those market conditions that can cause extreme price spikes we expect that increased connectivity yields additional supply in the short term and therefore will reduce the impact of price spikes our results indicate that the impact of price spikes and volatility decreased over time that prices behave more random and that the parameter estimates between various connected markets seem to have converged between the belgian dutch french german and nordic day ahead markets over the years 2003 through 2010 these results can be explained by increased connectivity and improved liquidity

effects of renewables on the stylized facts of electricity prices abstract many countries around the world have increased their renewable installed capacity due to a greater awareness of climate concerns under this new framework with renewables being among the main generation sources the literature warns of a dramatic change in price behaviour some of the most commonly claimed effects of having a significant proportion of renewable generating sources in the total electricity production mix include i a systematic decrease in overall wholesale market prices ii a higher occurrence of price jumps and iii a significant increase in price volatility the goal of the present study is to test whether these changes in price behaviour have actually come about to do so we focus on the spanish day ahead electricity market as a paradigmatic example in line with the literature it is found a statistically negative relationship between the renewable generation share and the day ahead market marginal prices as well we have obtained statistical confirmation of the fact that renewables generation share volatility is transferred to price volatility though similarly to other generation technologies finally in contrast to the general belief that the introduction of renewable generation would give rise to extreme positive prices according to our results increases in renewables generation share reduce the probability of upward jumps in prices the results obtained are of interest for portfolio managers practitioners and regulators

on the economics of philanthropy friedman says that he accepts this argument as justifying governmental action to alleviate poverty economists will be familiar with this kind of argument someone takes as a premise that a particular activity is the subject of altruistic concern by individuals he shows that if matters are left to unco ordinated private philanthropy a free rider problem will arise and then he claims that this problem can be solved by some kind of intervention by government this strategy has been used to justify many kinds of intervention including compulsory transfers of income through the tax system hochman and rodgers i969 public policy to stimulate saving and investment marglin i963 sen i967 and the subsidisation or public provision of health care arrow i963 lindsay i969 culyer i976 this whole line of argument rests on a particular theory of private philanthropy which in turn relies on three principal assumptions first there is the publicness assumption the charitable activity in question say the relief of poverty or the provision of health care is a common argument in many individuals utility functions and so is a public good in the theoretical sense samuelson i954 in some cases of private philanthropy it is indisputable that the charitable activity is a public good from which donors derive utility consider for example the case of yachtsmen contributing to the royal national lifeboat institution or potential cancer victims contributing to the cancer research campaign in other cases the assumption takes on a rather different character rich britons contribute towards famine relief in cambodia childless old age pensioners contribute towards the care of handicapped children in such cases one would have to be extremely cynical to believe that the charitable activity furthers the self interest of the donor in any significant way but one might suggest that for purely altruistic reasons the donor derives utility from knowing that less fortunate people are being made better off such an effect will be called an altruistic externality friedman along with all of the other writers quoted in the first paragraph of this paper relies on altruistic externalities to justify the publicness assumption the second assumption is that of utility maximisation each individual s decisions concerning his philanthropic