A study of electricity market volatility using long memory heteroscedastic model

摘要

An accurate wholesale electricity market forecast has become an essential tool in bidding and hedging strategies in competitive electricity markets. This paper provides a dynamic asymmetric long memory heteroscedastic model to account the high volatile daily wholesale electricity markets in New England and Louisiana. This model implemented power Cox-Box transformation (Tse, 1998) under the Chung’s (1999) model specification to the time-varying volatility. The model is able to capture various empirical stylized facts that commonly observed in electricity markets including clustering volatility, news impact, heavy-tailed and long memory volatility. Under the forecast evaluations, the long memory model outperformed the traditional model in all the forecast time-horizons. Finally, the outcome of the analysis is further applied in quantifying the market risk in term of value-at-risk.