We calibrate Markov regime-switching (MRS) models to mean daily spot prices from the EEX market. Our empirical study shows that (i) models with shifted spike regime distributions lead to more realistic models of electricity spot prices and that (ii) introducing heteroskedasticity in the base...

The Heston model stands out from the class of stochastic volatility (SV) models mainly for two reasons. Firstly, the process for the volatility is nonnegative and mean-reverting, which is what we observe in the markets. Secondly, there exists a fast and easily implemented semi-analytical...

In this paper we first analyze the stylized facts of electricity prices, in particular, the extreme volatility and price spikes which lead to heavy-tailed distributions of price changes. Then we calibrate Markov regime-switching (MRS) models with heavy-tailed components and show that they...

Traditionally volatility is viewed as a measure of variability, or risk, of an underlying asset. However recently investors began to look at volatility from a different angle. It happened due to emergence of a market for new derivative instruments - variance swaps. In this paper first we...

As an asset is traded, its varying prices trace out an interesting time series. The price, at least in a general way, reflects some underlying value of the asset. For most basic assets, realistic models of value must involve many variables relating not only to the individual asset, but also to...

The dynamics of hourly electricity prices in day-ahead markets is an important element of competitive power markets that were only established in the last decade. In electricity markets, the market microstructure does not allow for continuous trading, since operators require advance notice in...