CERNA, Centre d’économie industrielle Ecole Nationale Supérieure des Mines de Paris - 60, bld St Michel - 75272 Paris cedex 06 - France Téléphone : (33) 01 40 51 9314 - Télécopie : (33) 01 44 07 10 46 - E-mail : [email protected]Power Power Markets Markets and Models: and Models: Convergence ? Convergence ? Alain Galli, Nicolas Rouveyrollis & Margaret Armstrong ENSMP Presented at Le printemps de la recherche -EDF, 20 May 2003 Web Site: www.cerna.ensmp.fr
Review of Models and Empirical Analysis of Power Markets in Europe
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CERNA, Centre d’économie industrielle
Ecole Nationale Supérieure des Mines de Paris - 60, bld St Michel - 75272 Paris cedex 06 - FranceTéléphone : (33) 01 40 51 9314 - Télécopie : (33) 01 44 07 10 46 - E-mail : [email protected]
Power Power MarketsMarkets and Models: and Models:
Convergence ? Convergence ?Alain Galli, Nicolas Rouveyrollis
& Margaret Armstrong
ENSMP
Presented at Le printemps de la recherche -EDF, 20 May 2003
Web Site: www.cerna.ensmp.fr
Review Review of Modelsof Models
•Fundamental modelling
•Cost based modelling
•Economic equilibrium
•Agent based modelling
•Quantitative modelling
- Based on stochastic models ( finance )
- Finance & « physical »
Models Models derived from derived from financefinance
•Black & Scholes
•Mean reverting (OU) exp (OU)
•Multifactor type models
•Jumps models
•Stochastic volatility models
•Levy processes
• HJM type models
•Garch
•Switching models
Multifactor Multifactor modelsmodels
Variants of Brennan’s model (for interest rates)
or Gibson-Schwartz extended by Schwartz (for commodity)
( )
( )
S S
C C
S C
dS C dt dWSdC C dt dWdW dW dt
µ σ
κ α σρ
= − +
= − +
=
Drawback:
• C non observable
• 6 parameters
Pilipovic
S ~ OU
C ~ GBM
HJM type (HJM type (multifactormultifactor))
1
( , ) ( , )( , )
ni
i ti
dF t T t T dWF t T
σ=
= ∑
Clewlow &Strikland (1999)
0 01 1
( , ) ( , )( ) ( (0, ) ( , ) ( , )( )
n nt t i ii ii u i t
i i
u t u tdS t Log F t u t du dW dt t t dWS t t t t
σ σσ σ= =
∂ ∂∂ = − + + ∂ ∂ ∂ ∑ ∑∫ ∫
Jump Jump modelsmodels
Electricity spot prices show strong variations
Strong variations = Jumps
•Jumps « mean reverting »
•Positive and negative Jumps
Examples
•OU +Jumps (Villaplana - 2003)
•GS two factors +Jumps
•Jump +switching (Roncoroni - 2002)
Stochastic volatilityStochastic volatility
Example
( )
( ) ( ( )) ( )
S
S
dS dt t dWSt t dt t dW
dW dW dtν
ν
µ ν
ν κ θ ν ξ νρ
= +
= − +
=
Heston
Switching Switching ModelsModels
( )
~ (0, )t
t t
t
t
r
Ln S
N
rµ ε
ε σ
= +
rt is a Markov Chain
Example (Elliott, Sick & Stein, 2003)
Markov chain = the number of active generators at time t
Bid based Stochastic Bid based Stochastic ModelsModels
Skantze, P., Gubina, A., & Ilic, M. (2000)
(( )) ()aL tS e b tt +=
L(t) = Stochastic Load
b(t) = Stochastic shift with jumps due to outage
Comments Comments on Modelson Models
•Most models (except the last ones) are transposed directly fromfinance
•Seasonality is considered not a problem
•From practical point of view similar results can be obtained from
Jumps, Switching and Volatility -If Jump amplitude ~Vol-
•Still few models consider external variables
(eg Temperature,Capacity, Outage,..)
• Many practical studies on markets but few proposals for marketdriven diffusion models
Market Market DataData
Daily average of 24 hourly spot prices
Characteristics of weekly seasonality
then Spot after normalisation
PowernextPowernext EEXEEX Spot Spot
EEX-Powernext +80
PowernextPowernext & & EEXEEX
Average Average Spot Spot Price Price on on Different DaysDifferent Days