forecasting day ahead electricity load using a multiple equation time series approach the quality of short term electricity load forecasting is crucial to the operation and trading activities of market participants in an electricity market in this paper it is shown that a multiple equation time series model which is estimated by repeated application of ordinary least squares has the potential to match or even outperform more complex nonlinear and nonparametric forecasting models the key ingredient of the success of this simple model is the effective use of lagged information by allowing for interaction between seasonal patterns and intra day dependencies although the model is built using data for the queensland region of australia the method is completely generic and applicable to any load forecasting problem the model s forecasting ability is assessed by means of the mean absolute percentage error mape for day ahead forecast the mape returned by the model over a period of 11 years is an impressive 1 36 the forecast accuracy of the model is compared with a number of benchmarks including three popular alternatives and one industrial standard reported by the australia energy market operator aemo the performance of the model developed in this paper is superior to all benchmarks and outperforms the aemo forecasts by about a third in terms of the mape criterion

the non linear link between electricity consumption and temperature in europe a threshold panel approach this paper investigates the relationship between electricity demand and temperature in the european union we address this issue by means of a panel threshold regression model on 15 european countries over the last two decades our results confirm the non linearity of the link between electricity consumption and temperature found in more limited geographical areas in previous studies by distinguishing between north and south countries we also find that this non linear pattern is more pronounced in the warm countries finally rolling regressions show that the sensitivity of electricity consumption to temperature in summer has increased in the recent period

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

the recovery theorem we can only estimate the distribution of stock returns but from option prices we observe the distribution of state prices state prices are the product of risk aversion the pricing kernel and the natural probability distribution the recovery theorem enables us to separate these to determine the market s forecast of returns and risk aversion from state prices alone among other things this allows us to recover the pricing kernel market risk premium and probability of a catastrophe and to construct model free tests of the efficient market hypothesis

on the recoverability of preferences and beliefs we examine the extent to which an investor s tastes and beliefs can be jointly recovered from knowledge of his her consumption choice more precisely we assume that the investor s preferences admit an expected utility representation but with subjective unknown probabilities and investigate what joint restrictions can be placed on utility functions and beliefs if the investor draws utility from intertemporal consumption we show that the set of utility functions and beliefs that are consistent with a given consumption choice can be characterized by a martingale condition in the markovian case this characterization can be restated in terms of a riccati differential equation that must be satisfied by the investor s relative risk aversion function to each solution of this differential equation is associated a unique utility function and a unique set of beliefs supporting the given consumption choice moreover we show that the differential equation has at most one solution in the class of utility functions displaying infinite absolute risk aversion at the origin thus preferences and associated beliefs can be uniquely recovered within this class article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

interlinkage limited liability and strategic interaction abstract the literature on interlinkage is inconclusive regarding the strict superiority of this arrangement we analyze a landlord and a moneylender as two players making non cooperative decisions regarding the terms of their respective contracts with a tenant in the sequential game where the landlord moves first and the tenant has limited liability we demonstrate that there exist circumstances in which interlinkage is superior even with nonlinear loan contracts a result that carries over when there is moral hazard the incorporation of risk aversion yields strict superiority in general the main result is unaffected by changes in the seniority of claims but is sensitive to changes in the order of moves limited liability ceases to ensure the strict superiority of interlinked contracts if the principal who provides the variable factor of production moves first even if he has junior claims to the output

forecasting day ahead electricity prices utilizing hourly prices abstract the daily average price of electricity represents the price of electricity to be delivered over the full next day and serves as a key reference price in the electricity market it is an aggregate that equals the average of hourly prices for delivery during each of the 24 individual hours this paper demonstrates that the disaggregated hourly prices contain useful predictive information for the daily average price in the nord pool market multivariate models for the full panel of hourly prices significantly outperform univariate models of the daily average price with reductions in root mean squared error of up to 16 substantial care is required in order to achieve these forecast improvements rich multivariate models are needed to exploit the relations between different hourly prices but the risk of overfitting must be mitigated by using dimension reduction techniques shrinkage and forecast combinations

recovering preferences from preferences over nominal gambles abstract the main result in revealed preference theory is that under fairly weak assumptions strict concavity and monotonicity of the utility function an agent s preferences can be recovered from the entire demand function this paper addresses the possibility of recovering preferences from less extensive information given additional maintained restrictions on preferences specifically we explore whether an agent s utility function can be recovered from preferences over nominal gambles when money is risky in real terms or from demand for assets whose nominal returns contain common inflation or other risk the recovery is constructive to the extent that there is a good numerical technique for doing fourier transforms and inversions and other numerical computations can be done

formal and informal sector credit institutions and interlinkage abstract nationalized banks in poor countries often ration rural credit this creates demand for loans from monopolistic landlord moneylenders who often interlink credit and product contracts allowing the latter to extract more of the tenant s consumer surplus in the presence of asymmetric information such arrangements can be inefficient we find that increasing the fixed credit allocation to the rural sector at a subsidized rate does not reduce that inefficiency the entire benefit of the subsidy is extracted by the moneylender an alternative policy of providing credit at subsidized rates but in a flexible manner is more effective in reducing the inefficiency

estimating the value of information we derive a general expression for the value of information to a price taking investor in a dynamic environment and provide a framework for its estimation we study the value of both private and public information and break it into its instrumental and psychic parts to illustrate we estimate and rank the values of leading macroeconomic indicators gdp employment etc using variations in option prices we find that consumer investors with conventional preference parameters would pay 3 to 5 bps of their wealth for a one time private peek into these indicators such signals provide substantial instrumental value but a minor psychic value received august 29 2016 editorial decision june 6 2018 by editor itay goldstein authors have furnished an internet appendix which is available on the oxford university press web site next to the link to the final published paper online

short run electricity load forecasting with combinations of stationary wavelet transforms short term forecasting of electricity load is an essential issue for the management of power systems and for energy trading specific modeling approaches are needed given the strong seasonality and volatility in load data in this paper we investigate the benefit of combining stationary wavelet transforms to produce one day ahead forecasts of half hourly electric load in france first we assess the advantage of decomposing the aggregate load into several subseries with a wavelet transform each component is predicted separately and aggregated to get the final forecast one innovation of this paper is to propose several approaches to deal with the boundary problem which is particularly detrimental in electricity load forecasting second we examine the benefit of combining forecasts over individual models an extensive out of sample evaluation shows that a careful treatment of the border effect is required in the multiresolution analysis combinations including the wavelet predictions provide the most accurate forecasts this result is valid with several assumptions about the forecast error in temperature and for different types of hours peak normal off peak different days of the week and various forecasting periods

on dynamic investment strategies abstract this paper presents a new approach for analyzing dynamic investment strategies previous studies have obtained explicit results by restricting utility functions to a few specific forms not surprisingly the resultant dynamic strategies have exhibited a very limited range of behavior in contrast we examine what might be called the inverse problem given any specific dynamic strategy can we characterize the results of following it through time more precisely can we determine whether it is self financing yields path independent returns and is consistent with optimal behavior for some expected utility maximizing investor we provide necessary and sufficient conditions for a dynamic strategy to satisfy each of these properties

modeling special day effects for forecasting intraday electricity demand abstract we propose and apply a novel approach for modeling special day effects to predict electricity demand in korea notably we model special day effects on an hourly rather than a daily basis hourly specified predictor variables are implemented in the regression model with a seasonal autoregressive moving average sarma type error structure in order to efficiently reflect the special day effects the interaction terms between the hour of day effects and the hourly based special day effects are also included to capture the unique intraday patterns of special days more accurately the multiplicative sarma mechanism is employed in order to identify the double seasonal cycles namely the intraday effect and the intraweek effect the forecast results of the suggested model are evaluated by comparing them with those of various benchmark models for the following year the empirical results indicate that the suggested model outperforms the benchmark models for both special and non special day predictions

short term electricity trading for system balancing an empirical analysis of the role of intraday trading in balancing germany s electricity system abstract previous studies have noted that unexpectedly germany s dramatic expansion of wind and solar energy coincided with a reduction of short term balancing reserves this observation has been dubbed the german balancing paradox this paper provides further and updated evidence since 2011 wind and solar energy have nearly doubled while both reserve requirements and reserve use have declined by 50 the paper quantitatively explores one reason for reduced balancing needs increased and improved short term wholesale electricity trading on the intraday market trading is now commonly done around the clock and based on quarter hour rather than full hour contracts the shift to quarter hourly products alone explains a decrease in balancing energy by 17 there is also strong evidence that market parties respond efficiently to imbalance charges suggesting that incentive based approaches to electricity balancing work

price uncertainty and trader farmer linkage abstract we show that the pareto superiority of loan repayment in kind within a tied credit arrangement to a cash for cash scheme under uncertain output price depends crucially on the farmer loan demand elasticity and his risk aversion for the risk neutral trader the cash for cash scheme is shown to be pareto dominated by credit tying and the price premium he offers depends on farmer loan demand elasticity

on equilibrium asset price processes in this article we derive necessary and sufficient conditions that must be satisfied by equilibrium asset price processes in apure exchange economy we examine a world in which asset prices follow a diffusion process asset markets are dynamically complete all investors maximize their state independent expected utility of consumption at some future date and investors have nonrandom exogenous income we show that it is necessary and suffcient that the coefficients of an equilibrium diffusion price process satisfy a partial differential equation and a boundary condition we also examine how the dynamics of asset prices are related to the shape of the representative investor s utility function through the boundary condition for example in a constant volatility economy the expected instantaneous return of the market portfolio is mean reverting if and only if the relative risk aversion of the representative investor is decreasing in terminal wealth

the term structure of interest rates in a dsge model with recursive preferences abstract a dynamic stochastic general equilibrium dsge model in which households have epstein and zin recursive preferences is solved with perturbation the parameters governing preferences and technology are estimated by maximum likelihood using macroeconomic data and the term structure of interest rates the estimates imply a large risk aversion an elasticity of intertemporal substitution higher than one and substantial adjustment costs furthermore the paper identifies the tensions within the model by estimating it on subsets of these data the analysis concludes by pointing out potential extensions that may improve the model s fit

forecasting electricity spot prices using time series models with a double temporal segmentation the french wholesale market is set to expand in the next few years under european pressure and national decisions in this article we assess the forecasting ability of several classes of time series models for electricity wholesale spot prices at a day ahead horizon in france electricity spot prices display a strong seasonal pattern particularly in france given the high share of electric heating in housing during winter time to deal with this pattern we implement a double temporal segmentation of the data for each trading period and season we use a large number of specifications based on market fundamentals linear regressions markov switching ms models and threshold models with a smooth transition an extensive evaluation on french data shows that modelling each season independently leads to better results among nonlinear models ms models designed to capture the sudden and fast reverting spikes in the price dynamics yield more accurate forecasts finally pooling forecasts give more reliable results

the integrability problem of asset prices abstract in a dynamic continuous time stochastic environment given a well behaved asset price a non decreasing and concave utility function that reproduces the asset price in the rational expectations equilibrium can be identified journal of economic literature classification numbers d11 g12 c60 d50 d80

when are path dependent payoffs suboptimal abstract generalizing a result by cox and leland 2000 vanduffel et al 2009 this note shows that risk averse investors with fixed planning horizon prefer path independent payoffs in any financial market if the pricing kernel is a function of the underlying s price at the end of the planning horizon generally for every payoff which is not a function of the pricing kernel there is a more attractive alternative that depends solely on the pricing kernel at the end of the planning horizon

interlinked contracts an empirical study this study investigates the contractual relationship between farmers and sugar mills in colonial taiwan our investigation is based on a model of interlinked contracts which is adapted from gangopadhyay and sengupta 1987 the validity of our model s predictions is verified by analyzing a data set consisting of contracts between taiwan s cane farmers and sugar mills during the period of japanese occupation our data suggest that the contractual relationship is consistent with a second best scenario where the interest rates charged by sugar mills on cash loans to farmers are set in order to prevent diversion of funds to non production uses

capital growth with security abstract this paper discusses the allocation of capital over time with several risky assets the capital growth log utility approach is used with conditions requiring that specific goals are achieved with high probability the stochastic optimization model uses a disjunctive form for the probabilistic constraints which identifies an outer problem of choosing an optimal set of scenarios and an inner conditional problem of finding the optimal investment decisions for a given scenarios set the multiperiod inner problem is composed of a sequence of conditional one period problems the theory is illustrated for the dynamic allocation of wealth in stocks bonds and cash equivalents

sharecropping and the interlinking of agrarian markets one of the often noted features of less developed agrarian economies is the existence of interlinkages among the land labor credit and product markets the landlord is often the supplier of credit he frequently purchases and markets the output of the tenant farmers and often sells raw materials and even consumption goods to his tenant farmers how can this phenomenon be explained what are the welfare consequences of attempts to restrict these practices which often seem to constitute restraints on free trade these are the questions to which this paper is addressed a general set of arguments applicable to both competitive and noncompetitive environments are presented to situations where all the terms of the contract are determined in an optimal way as well as to situations where many of the terms are specified institutionally section i examines interlinked credit and tenancy contracts section ii examines interlinked marketing and tenancy contracts section iii points out the possible interlinking between labor contracts and consumption goods markets and section iv presents the different equilibrium frameworks discussed in the paper such as monopoly monopsony competition and equilibria with surplus labor

the local recoverability of risk aversion and intertemporal substitution abstract call an economy revealing if underlying preferences are recoverable from asset prices specifically from the prices of aggregate equity or a one period discount bond in a lucas econometrica 46 1978 1429 4444 model with kreps porteus econometrica 46 1978 185 200 nonexpected utility and markov output growth rate process local recoverability is shown to be a generic property in this sense it is generically true that asset pricing models based on the more general kreps porteus utility have more explanatory power than the usual expected utility and both the risk aversion and intertemporal aspects of the kreps porteus utility can be recovered from a single dynamic equilibrium journal of economic literature classification numbers d11 g12 c60 d50 d80

recovery of preferences from observed wealth in a single realization von neumann morgenstern preferences over terminal consumption can be inferred from wealth on a single sample path when markets are complete and returns follow a known law in a neoclassical investment problem in either a discrete time i i d binomial model or a continuous time diffusion model with a gaussian state variable numerical results suggest that useful information about preferences can be obtained from even a single noisy sample of monthly observations of a portfolio over 5 years article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

recovering cardinal utility individual choice under uncertainty depends on an agent s attitudes towards risk typically represented by his von neumann morgenstern cardinal utility function u this function is of course an unobservable characteristic what is at least in principal observable is the agent s demand for alternative assets problems of prediction and welfare often require conclusions to be drawn concerning the unobservable characteristics based on observable behaviour to predict the response to a change in the stochastic production plan of a firm or to determine the compensation necessary so as to avoid a loss in welfare due to a change in the capital tax structure knowledge of an agent s attitude towards risk is required it is the purpose of the present paper to demonstrate that as long as the joint distribution of returns of the available assets is known the cardinal utility function can be recovered without ambiguity from asset demands provided that the set of available assets contains a riskless asset the distinguishing characteristic of the recoverability problem as posed here is the possible incompleteness of markets in a framework of complete markets if nominal income and prices vary independently the range of the demand correspondence can be assumed to cover an open subset of the consumption set the utility function can then be immediately recovered up to a monotone transformation over this range given mild regularity conditions on demand behaviour given incomplete markets however this argument fails since the choice set is a lower dimensional subspace of state space we learn only about the agent s preferences within this subspace we show that the existence of a riskless asset and some risky asset implies recoverability of von neumannmorgenstern preferences even if markets are incomplete in the presence of a riskless asset any positive riskless level a of wealth is demanded for some asset prices using arguments from pratt 1964 the ratio u a u a can be recovered without ambiguity for all positive resp non negative values of a and hence an integration argument can be used to recover the cardinal utility function u up to a positive affine transformation beyond the argument based on knowledge of the asset demand correspondence we explore an alternative approach to recoverability we demonstrate that knowledge of the portfolio indifference surfaces permits recovery of the cardinal utility function provided there is a riskless asset the intuition here is that the agent s risk aversion is directly related to the curvature of the indifference curve around the riskless point and the variance of the risky asset s that this approach is in general equivalent to the demand correspondence approach is well known we give a brief proof for twice continuously differentiable and strictly monotone utility functions we point out two results concerning the informational requirements of the argument for recoverability specifically the argument does not require complete knowledge of the distribution of returns independently of the asset demands instead it suffices to know the mean and variance of the returns to just one asset other than the riskless and the return of the riskless asset furthermore if the demand for assets is known only on a subset of the

electricity demand elasticities and temperature evidence from panel smooth transition regression with instrumental variable approach abstract this study applies a non linear model i e the recently developed panel smooth transition regression pstr model and takes into account the potential endogeneity biases to investigate the demand function of electricity for 24 oecd countries from the period 1978 2004 our empirical results demonstrate that there is a strongly non linear link among electricity consumption real income electricity price and temperature a result that is new to the literature as real income rises electricity consumption rapidly increases first and after the level of real income exceeds approximately us 2500 its increasing rate turns slow down an increase in electricity price has a negative or no influence on electricity consumption evidence of a u shaped relationship between electricity consumption and temperature is supported and the threshold value of temperature is approximately 53 f which is endogenously determined furthermore the estimated elasticities of time dynamic indicate that electricity demand is income inelastic price inelastic and temperature inelastic as time goes on the absolute elasticities of electricity demand gradually decrease with respect to real gdp and electricity price whereas they gradually increase with respect to temperature suggesting that the impact of temperature on electricity demand is becoming more important in recent years