the effect of asymmetries on optimal hedge ratios there is widespread evidence that the volatility of stock returns displays an asymmetric response to good and bad news this article considers the impact of asymmetry on time varying hedges for financial futures an asymmetric model that allows forecasts of cash and futures return volatility to respond differently to positive and negative return innovations gives superior in sample hedging performance however the simpler symmetric model is not inferior in a hold out sample a method for evaluating the models in a modern risk management framework is presented highlighting the importance of allowing optimal hedge ratios to be both time varying and asymmetric

greener more integrated and less volatile a quantile regression analysis of italian wholesale electricity prices abstract this paper provides estimates of quantile regression models of the relationship between italian day ahead electricity prices the supply of renewables and the inception of a new cable sapei linking sardinia with the italian peninsula in the 2006 2015 time window the results confirm the merit order effects detected in the existing literature both for photovoltaics and wind power more strongly in market conditions characterised by moderately low price levels and with some implied increase in volatility the new cable has apparently challenged the ability of power generating companies to extract value through price spikes has mitigated volatility and its effects have been complementary with those of renewables effects from photovoltaics are more sensitive to robustness checks differences across zonal markets are nonetheless detected

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

cointegration analysis of spot electricity prices insights on transmission efficiency in the western us abstract the us energy policy act of 1992 promoted the development of spot markets for electric power by requiring utilities to open their transmission systems to wholesale power sales in this paper we specify and estimate a vector error correction model using peak and off peak electricity spot prices during 1994 1996 covering 11 regional markets in the western united states and test these prices for evidence of market integration the results show evidence of an efficient and stable wholesale power market

rockets and feathers in power futures markets evidence from the second phase of the eu ets abstract this paper examines the possibility of asymmetric transmission of co 2 prices to electricity futures prices in the second phase of the european emission trading scheme we would like to assess whether output prices tend to respond more quickly to input price increases than decreases this phenomenon is known as rockets and feathers in the literature compared to zachmann and von hirschhausen 2008 who carried out a similar analysis for germany in the first phase of the emission trading scheme with data from 2005 to 2006 our study spans a longer timeframe july 2007 june 2010 with a presumably more mature permit market and includes three additional european countries france belgium and the netherlands results do not provide empirical evidence of statistically significant differences in the response of power prices to positive and negative shocks in co 2 allowance and fuel markets

volatility and a century of energy markets dynamics how similar is the price behavior of oil natural gas and coal are there any interactions among these three fuel prices and their volatilities using the yatchew and dimitropoulos 2016 annual data for the united states over the period from 1870 to 2014 and state of the art econometric methodology we explore for spillovers and interactions among the three energy markets in doing so we use a range of univariate and multivariate volatility models the key contribution to the literature is the estimation of a trivariate bekk model that allows for the interdependence of oil natural gas and coal returns and volatilities using the longest span prices that have ever been studied before

a multivariate garch model of international transmissions of stock returns and volatility the case of the united states and canada this study examines the short run dynamics of returns and volatility for stocks traded on the new york and toronto stock exchanges the main finding is that inferences about the magnitude and persistence of return innovations that originate in either market and that transmit to the other market depend importantly on how the cross market dynamics in volatility are modeled moreover much weaker cross market dynamics in returns and volatility prevail during later subperiods and especially for canadian stocks with shares dually listed in new york implications for international asset pricing hedging strategies and regulatory policy are discussed

the effect of a new power cable on energy prices volatility spillovers abstract in this paper we estimate volatility spillovers before and after the introduction of a new cable linking different electricity market zones using wholesale electricity prices for sardinia and two neighbouring italian market zones for the period 2005 2015 we focus on the effects of the sapei cable fully operational since march 2011 var garch estimates indicate that the sapei cable allowed for stronger volatility transmission towards sardinia a smaller zone and a net importer from its new neighbour the central southern zone albeit the effect was significant only off peak higher conditional correlations between zonal prices are also observed after the cable was introduced some implications are drawn about the interaction between market size export positions congestion and volatility transmission

integration of regional electricity markets in australia a price convergence assessment abstract from an electricity market design perspective it is relevant and practical to know which market structures allow for price convergence and how long this takes to achieve this study employs the phillips and sul 2007 2009 methodology to test for the convergence of wholesale electricity prices across the australian states we identify a long run common price growth pattern that applies to a cluster formed by three eastern states that share common market characteristics and limited physical interconnection we also find another cluster with less competitive market structures that although not interconnected strongly converge towards their own trend these findings confirm theoretical expectations while quantifying the rate of convergence finally we also investigate the role that the carbon tax regime has played in the convergence process with new empirical showing that the previous results are not affected with the notable exception being the case of south australia

consumer electricity and gas prices across australian capital cities structural breaks effects of policy reforms and interstate differences abstract we detect and analyze the most significant structural changes in the quarterly growth rate of consumer electricity and gas prices in australia and estimate their corresponding seasonal effects to do so we apply the general modelling framework of the bai perron breaking regression to all available quarterly data for capital cities individually and australia as a whole 1989q3 2017q2 retail energy prices in most australian states were deregulated in the 2000s we find that increases in average quarterly growth rates of electricity and gas prices consistently occurred in the third september quarter and find very few instances of increases in any other quarters of the year in the post deregulation period price increases are significantly higher than in the pre deregulation era results for some capital cities are stark in perth third quarter growth in electricity prices has been five times higher after the structural break in australia as a whole third quarter growth in gas prices has been three times higher after the structural break we discuss several possible explanations for energy price rises in the period since deregulation

commodity currencies and commodity prices modelling static and time varying dependence abstractthis article employs the copula approach to study the relationship between exchange rates and commodity prices for large commodity exporters using data for the nominal exchange rates of four commodity currencies australian canadian and new zealand dollars and norwegian krone against the us dollar and the relevant country specific commodity price indices constructed on a daily basis we find 1 a positive dependence between the values of commodity currencies and commodity indices i e a commodity index increases when a respective currency appreciates and provides several explanations for this finding 2 no major asymmetries in the tail dependence for most pairs of exchange rates and commodity indices and 3 a pronounced increase in the time varying tail dependence following the global financial crisis

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

locational price spreads and the pricing of contracts for difference evidence from the nordic market in electricity markets not only does the risk of substantial price variations over time exist but so does the risk of price variations over space as prices between locations can differ due to transmission congestion to manage this risk contracts for difference cfds i e forwards on the spread between a particular area price and the unconstrained system price were introduced at the scandinavian electricity exchange nord pool at the end of 2000 we empirically investigate the pricing of these cfds over the period 2001 through 2006 and find that cfd prices contain significant risk premia their sign and magnitude however differ substantially between areas and delivery periods because areas are subject to transmission congestion to a varying extent while the relation between risk premia and time to maturity is not uniform for cfds there is a negative relation for implied area and system forwards which can be explained by the relative hedging demand of market participants in addition we find that risk premia of cfds and implied area forwards vary systematically with the variance and skewness of the underlying spot prices this confirms both implications of the bessembinder and lemmon bessembinder h lemmon m l 2002 equilibrium pricing and optimal hedging in electricity forward markets journal of finance 57 1347 1382 model

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

electricity pool prices a case study in nonlinear time series modelling this paper considers modelling the behaviour of prices in the english and welsh wholesale electricity pool since the creation of this spot market in 1990 the process turns out to be nonlinear and a logistic smooth transition autoregressive model is fitted and shown to be superior to a linear alternative the behaviour of the estimated model is discussed and it is seen that nonlinearity is needed to describe the institutional characteristics and historical path of pool prices

modelling price and volatility inter relationships in the australian wholesale spot electricity markets this paper examines the inter relationships of wholesale spot electricity prices among the four regional electricity markets in the australian national electricity market nem namely new south wales queensland south australia and victoria using the constant conditional correlation and tse and tsui s tse y k tsui a k c 2002 a multivariate generalised autoregressive conditional heteroscedasticity model with time varying correlations journal of business and economic statistics 20 3 351 362 and engle s engle r 2002 dynamic conditional correlation a sample class of multivariate generalized autoregressive conditional heteroskedasticity models journal of business and economic statistics 20 3 339 350 dynamic conditional correlation multivariate garch models tse and tsui s tse y k tsui a k c 2002 a multivariate generalised autoregressive conditional heteroscedasticity model with time varying correlations journal of business and economic statistics 20 3 351 362 dynamic conditional correlation multivariate garch model which takes account of the student t specification produces the best results at the univariate garch 1 1 level the mean equations indicate the presence of positive own mean spillovers in all four markets and little evidence of mean spillovers from the other lagged markets in the dynamic conditional correlation equation the highest conditional correlations are evident between the well connected markets indicating the presence of strong interdependence between these markets with weaker interdependence between the not so well interconnected markets

arch models properties estimation and testing abstract the aim of this survey paper is to provide an account of some of the important developments in the autoregressive conditional heteroskedasticity arch model since its inception in a seminal paper by engle 1982 this model takes account of many observed properties of asset prices and therefore various interpretations can be attributed to it we start with the basic arch models and discuss their different interpretations arch models have been generalized in different directions to accommodate more and more features of the real world we provide a comprehensive treatment of many of the extensions of the original arch model next we discuss estimation and testing for arch models and note that these models lead to some interesting and unique problems there have been numerous applications and we mention some of these as we present different models the paper includes a glossary of the acronyms for the models we describe

revitalising the wind power induced merit order effect to reduce wholesale and retail electricity prices in australia this paper investigates the effect of increasing the number of wind turbine generators on wholesale spot prices in the australian national electricity market s nem given the existing transmission grid from 2014 to 2025 we use a sensitivity analysis to evaluate the effect of five different levels of wind power penetration on prices ranging from scenario a no wind to scenario e that includes existing and planned wind power sufficient to meet australia s original 2020 41twh large scale renewable energy target lret we find divergence in prices between states and similar prices for nodes within states this supports the garnaut climate change review assessment on the prevalence of gold plating the intrastate transmission network and underinvesting in interstate connectivity we find that increasing wind power penetration decreases wholesale spot prices but that retail prices have increased in deregulated south australia and queensland similarly in victoria we argue that there is a pressing need to split the large generator retail companies into separate retail and generator companies and to reassess regulatory rules more generally interconnector congestion limits the potential for wind power to further reduce wholesale prices across the nem so the need for a high capacity transmission backbone in the nem is becoming clearer and will become pressing when australia moves beyond its current 2020 lret

transmission of prices and price volatility in australian electricity spot markets a multivariate garch analysis this paper examines the transmission of spot electricity prices and price volatility among the five regional electricity markets in the australian national electricity market namely new south wales queensland south australia the snowy mountains hydroelectric scheme and victoria a multivariate generalised autoregressive conditional heteroskedasticity model is used to identify the source and magnitude of price and price volatility spillovers the results indicate the presence of positive own mean spillovers in only a small number of markets and no mean spillovers between any of the markets this appears to be directly related to the physical transfer limitations of the present system of regional interconnection nevertheless the large number of significant own volatility and cross volatility spillovers in all five markets indicates the presence of strong autoregressive conditional heteroskedasticity and generalised autoregressive conditional heteroskedasticity effects this indicates that shocks in some markets will affect price volatility in others finally and contrary to evidence from studies in north american electricity markets the results also indicate that australian electricity spot prices are stationary

the impact of australian ets news on wholesale spot electricity prices an exploratory analysis this article investigates the impact of news concerning the development of emissions trading in australia such as the carbon pollution reduction scheme cprs on wholesale electricity spot prices by using a database of 117 news announcements from december 1 1998 to july 1 2009 as power producers constitute the bulk of the participants of the proposed australian emissions trading scheme regulatory changes about allocation banking coverage targets are indeed likely to affect the five interconnected electricity markets in new south wales queensland south australia victoria and tasmania we assess these effects with an arma 1 1 garch 1 1 model where daily electricity spot prices are regressed against exogenous variables in the mean and variance equations this article constitutes the first empirical analysis of australian ets news effects on electricity wholesale spot prices our results show two asymmetric types of news effects depending on their information content

a model of returns and trading in futures markets this paper develops an equilibrium model of a competitive futures market in which investors trade to hedge positions and to speculate on their private information equilibrium return and trading patterns are examined 1 in markets where the information asymmetry among investors is small the return volatility of a futures contract decreases with time to maturity i e the samuelson effect holds 2 however in markets where the information asymmetry among investors is large the samuelson effect need not hold 3 additionally the model generates rich time tomaturity patterns in open interest and spot price volatility that are consistent with empirical findings an issue central to the analysis of futures markets is the relationship between speculation and futures price volatility a long line of models see e g grossman 1977 bray 1981 have tried to understand the effects of speculation on futures price volatility this line of research is economically relevant as speculative trades appear to be an important determinant of volatility in futures markets for instance roll 1984 finds that public information accounts for only a fraction of the movement in orange juice futures prices which suggests that investors bring their own private information into the market through their trades unfortunately existing models of speculation in futures are essentially static ones and cannot speak to a number of interesting aspects of returns and trading in futures markets an example is the relationship between the price volatility and the timeto maturity of a futures contract the analysis of this issue is an important one and has a long history assuming the existence of a representative investor and an exogenous spot price process samuelson 1965 shows that when there is a mean reverting component in the spot price process and no

measuring consumption efficiency with utility theory and stochastic frontier analysis the concept of production efficiency has been studied since the 1960s but consumption activity as well may be inefficient for various reasons such as product complexity lack of information the bounded rationality of the consumer and imperfect markets to name a few this study proposes a conceptual framework for measuring the consumption efficiency of differentiated products based on traditional utility theory it employs stochastic frontier analysis sfa in an empirical analysis it makes use of hedonic price theory to link traditional utility theory and the sfa framework when the developed model is applied to the korean personal computer market empirical results indicate the levels and distribution of consumption efficiency in that market the findings afford us a better understanding of the characteristics of the innovation process in that market

a dynamic network analysis of spot electricity prices in the australian national electricity market abstract this study applies dynamic network analysis to the power sector examining the relationship between regional spot electricity prices in the australian national electricity market nem in particular we employ principal component analysis and generate granger causality networks to examine the degree of interconnectedness of the nem in a time varying setting we find that the derived measures of interdependence can be related to actual market events such as price spikes unexpected high demand for electricity sudden increases in price volatility rebidding of dominant generators the temporary or permanent outage of major power stations and upgrades and limitations in transmission capacity in the analysed network we find that stronger dependence is exhibited by regional markets that are linked through interconnectors while the direction of granger causality can be related to interregional trade we further examine the usefulness of the derived measures for forecasting distributional characteristics of spot prices such as the maximum price volatility price spreads or upcoming periods of price spikes our results suggest that the derived network measures have predictive power albeit limited for the behaviour of spot electricity prices in the nem

structural breaks and electricity prices further evidence on the role of climate policy uncertainties in the australian electricity market the primary objectives and the strategies of a national electricity market are the efficient delivery of network services and the electricity infrastructure to meet the long term consumer s interests therefore the objective of this study is to explore whether electricity prices across the six australian states display instability such instability is closely associated with the presence of structural breaks in relevance to policy events on australian carbon policies the study makes use of weekly australian wholesale electricity prices spanning the period from june 8th 2008 to march 30th 2014 along with linear and non linear unit root testing methodologies the results provide supportive evidence that the australian electricity market can be described as a less stable electricity market which implies that a high degree of market power is exercised by generators across regional markets these findings are expected to have substantial consequences for the effectiveness of carbon dioxide mitigating policies especially when there is uncertainty as to whether the planned environmental policy is put in place for the lifespan of undertaken investments