Modelling jumps in electricity prices: theoryand empirical evidence

Objective of this paper is to enhance the understanding of modelling jumpsand to analyse the model risk based on the jump component in electricity markets.We provide a common modelling framework that allows to incorporate the main jumppatterns observed in electricity spot prices and compare the effectiveness of differentjump specifications. To this end, we calibrate the models to daily European EnergyExchange (EEX) market data through Markov Chain Monte Carlo based methods. Toassess the quality of the estimated jump processes, we analyse their trajectorial andstatistical properties. Moreover, even when themodels are calibrated to a cross-sectionof derivative prices substantial model risk remains.[...]