A self‐exciting modeling framework for forward prices in power markets

We propose and investigate two model classes for forward power price dynamics, based on continuous branching processes with immigration, and on Hawkes processes with exponential kernel, respectively. The models proposed exhibit jumps clustering features. Models of this kind have been already propose...

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Bibliographic Details
Published inApplied stochastic models in business and industry Vol. 38; no. 1; pp. 27 - 48
Main Authors Callegaro, Giorgia, Mazzoran, Andrea, Sgarra, Carlo
Format Journal Article
LanguageEnglish
Published Bognor Regis Wiley Subscription Services, Inc 01.01.2022
Subjects
Adequacy
branching processes
Clustering
Evolution
forward prices
Hawkes processes
Heath–Jarrow–Morton model
jumps clustering
power markets
Pricing
self‐exciting processes
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Summary:We propose and investigate two model classes for forward power price dynamics, based on continuous branching processes with immigration, and on Hawkes processes with exponential kernel, respectively. The models proposed exhibit jumps clustering features. Models of this kind have been already proposed for the spot price dynamics, but the main purpose of the present work is to investigate the performances of such models in describing the forward dynamics. We adopt a Heath–Jarrow–Morton approach in order to capture the whole forward curve evolution. By examining daily data in the French power market, we perform a goodness‐of‐fit test and we present our conclusions about the adequacy of these models in describing the forward prices evolution.
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ISSN:1524-1904
1526-4025
DOI:10.1002/asmb.2645