Parameter Estimation of Electricity Spot Models from Futures Prices

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

doi:10.3182/20090706-3-FR-2004.0224

Parameter Estimation of Electricity Spot Models from Futures Prices

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

Research output: Chapter in Book/Report/Conference proceeding › Conference contribution › Academic › peer-review

1 Citation (Scopus)

384 Downloads (Pure)

Abstract

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 language	English
Title of host publication	15th IFAC Symposium on System Identification 2009
Editors	E. Walter
Publisher	IFAC
Pages	1457-1462
Number of pages	6
ISBN (Print)	978-3-902661-47-0
DOIs	https://doi.org/10.3182/20090706-3-FR-2004.0224
Publication status	Published - Jul 2009
Event	15th IFAC Symposium on System Identification, SYSID 2009 - Palais du Grand Large, Saint-Malo, France Duration: 6 Jul 2009 → 8 Jul 2009 Conference number: 15

Conference

Conference	15th IFAC Symposium on System Identification, SYSID 2009
Abbreviated title	SYSID
Country/Territory	France
City	Saint-Malo
Period	6/07/09 → 8/07/09

Keywords

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

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10.3182/20090706-3-FR-2004.0224

Aihara2009parameterAccepted author version, 1.27 MB

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title = "Parameter Estimation of Electricity Spot Models from Futures Prices",

abstract = "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.",

keywords = "METIS-265779, IR-70168, Filtering and smoothing, Recursive identification, Maximum likelihood methods, EWI-17341",

author = "ShinIchi Aihara and Arunabha Bagchi and E.S.N. Imreizeeq",

year = "2009",

month = jul,

doi = "10.3182/20090706-3-FR-2004.0224",

language = "English",

isbn = "978-3-902661-47-0",

pages = "1457--1462",

editor = "E. Walter",

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publisher = "IFAC",

note = "15th IFAC Symposium on System Identification, SYSID 2009, SYSID ; Conference date: 06-07-2009 Through 08-07-2009",

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T1 - Parameter Estimation of Electricity Spot Models from Futures Prices

AU - Aihara, ShinIchi

AU - Bagchi, Arunabha

AU - Imreizeeq, E.S.N.

N1 - Conference code: 15

PY - 2009/7

Y1 - 2009/7

N2 - 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.

AB - 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.

KW - METIS-265779

KW - IR-70168

KW - Filtering and smoothing

KW - Recursive identification

KW - Maximum likelihood methods

KW - EWI-17341

U2 - 10.3182/20090706-3-FR-2004.0224

DO - 10.3182/20090706-3-FR-2004.0224

M3 - Conference contribution

SN - 978-3-902661-47-0

SP - 1457

EP - 1462

BT - 15th IFAC Symposium on System Identification 2009

A2 - Walter, E.

PB - IFAC

T2 - 15th IFAC Symposium on System Identification, SYSID 2009

Y2 - 6 July 2009 through 8 July 2009

ER -

Parameter Estimation of Electricity Spot Models from Futures Prices

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