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Modelling Power Spikes with Inhomogeneous Markov-Switching Models

Norén, Vicke (2013) FMS820 20132
Mathematical Statistics
Abstract (Swedish)
Interest in modelling electricity prices has, despite its relatively short history, resulted
in widespread types of models that tend to be too intricate to incorporate most price
characteristics. This thesis pursues a flexible approach that comprehends stylized facts of
electricity prices while it still handles complexity in order to facilitate calibration and
forecasting. Although time-varying transitions of non-linear Markov-switching models
add a new dimension to the problem, the extension is pivotal to encompass the timing
of power spikes. Simulation studies provide a comparison between the maximum likelihood
estimator and the EM algorithm and validate the precision of the estimators. A
comprehensive study of the model... (More)
Interest in modelling electricity prices has, despite its relatively short history, resulted
in widespread types of models that tend to be too intricate to incorporate most price
characteristics. This thesis pursues a flexible approach that comprehends stylized facts of
electricity prices while it still handles complexity in order to facilitate calibration and
forecasting. Although time-varying transitions of non-linear Markov-switching models
add a new dimension to the problem, the extension is pivotal to encompass the timing
of power spikes. Simulation studies provide a comparison between the maximum likelihood
estimator and the EM algorithm and validate the precision of the estimators. A
comprehensive study of the model framework in the independent regime setting that
is applied to real data from the German and Nordic markets confirms the hypothesis
that extensive models with exogenous variables outperform time-invariant counterparts.
Improvements of electricity price dynamics and other issues involved in the process of
modelling electricity prices as well as potential future research topics are also suggested
and discussed. (Less)
Please use this url to cite or link to this publication:
author
Norén, Vicke
supervisor
organization
course
FMS820 20132
year
type
H2 - Master's Degree (Two Years)
subject
language
English
id
4194640
date added to LUP
2014-01-09 10:51:15
date last changed
2014-01-09 10:51:15
@misc{4194640,
  abstract     = {Interest in modelling electricity prices has, despite its relatively short history, resulted
in widespread types of models that tend to be too intricate to incorporate most price
characteristics. This thesis pursues a flexible approach that comprehends stylized facts of
electricity prices while it still handles complexity in order to facilitate calibration and
forecasting. Although time-varying transitions of non-linear Markov-switching models
add a new dimension to the problem, the extension is pivotal to encompass the timing
of power spikes. Simulation studies provide a comparison between the maximum likelihood
estimator and the EM algorithm and validate the precision of the estimators. A
comprehensive study of the model framework in the independent regime setting that
is applied to real data from the German and Nordic markets confirms the hypothesis
that extensive models with exogenous variables outperform time-invariant counterparts.
Improvements of electricity price dynamics and other issues involved in the process of
modelling electricity prices as well as potential future research topics are also suggested
and discussed.},
  author       = {Norén, Vicke},
  language     = {eng},
  note         = {Student Paper},
  title        = {Modelling Power Spikes with Inhomogeneous Markov-Switching Models},
  year         = {2013},
}