Parameter Estimation of Electricity Spot Models from Futures Prices

ShinIchi Aihara, Arunabha Bagchi, E.S.N. Imreizeeq

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    We consider a slight perturbation of the Schwartz-Smith model for the electricity futures prices and the resulting modified spot model. Using the martingale property of the modified price under the risk neutral measure, we derive the arbitrage free model for the spot and futures prices. We estimate the parameters of the model by the method of maximum likelihood using the Kalman filter's estimate of the unobservable state variables, coupled with the usual statistical techniques. The main advantage of the new model is that it avoids the inclusion of artificial noise to the observation equation for the implementation of Kalman filter. The extra noise is build in within the model in an arbitrage free setting.
    Original languageEnglish
    Title of host publication15th IFAC Symposium on System Identification 2009
    EditorsE. Walter
    Number of pages6
    ISBN (Print)978-3-902661-47-0
    Publication statusPublished - Jul 2009
    Event15th IFAC Symposium on System Identification, SYSID 2009 - Palais du Grand Large, Saint-Malo, France
    Duration: 6 Jul 20098 Jul 2009
    Conference number: 15


    Conference15th IFAC Symposium on System Identification, SYSID 2009
    Abbreviated titleSYSID


    • METIS-265779
    • IR-70168
    • Filtering and smoothing
    • Recursive identification
    • Maximum likelihood methods
    • EWI-17341

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