Template-type: ReDif-Paper 1.0
Author-Name: Eichler Michael 
Author-Name: Tuerk Dennis 
Author-workplace-name: METEOR
Title: 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 themodel parameters requires computer intensive methods. Moreover, the distribution of the pricespikes must be assumed given although the high volatility of the spikes makes it difficult tocheck this assumption. Consequently, there are a number of competing proposals. Alternatively wepropose the use of a semiparametric Markov regime-switching model that does not specify thedistribution under the spike regime. To estimate the model we use robust estimation techniques asan alternative to commonly applied estimation approaches. The model in combination with theestimation framework is easier to estimate, needs less computation time and distributionalassumptions. To show its advantages we compare the proposed model with a well establishedMarkov-switching model in a simulation-study. Further we apply the model to Australian logprices.The results are in accordance with the results from the simulation-study, indicating that theproposed model might be advantageous whenever the distribution of the spike process is notsufficiently known. The results are thus encouraging and suggest the use of our approach whenmodeling electricity prices and pricing derivatives.
Keywords: econometrics; 
Series: Research Memoranda
Creation-Date: 2012
Number: 036
File-URL: http://digitalarchive.maastrichtuniversity.nl/fedora/objects/guid:0b6ad18b-0517-40df-8bb4-ebc38e4f1c60/datastreams/ASSET1/content
File-Format: application/pdf
File-Size: 732145
Handle: RePEc:unm:umamet:2012036