Abstract
AbstractThis paper presents a single‐factor model to describe the fluctuation of the electricity futures price for its trading risk management. An autoregressive moving‐average model [ARMA (2,1) process] was used to express the stochastic process of the price, instead of a conventionally used Markov process such as the AR(I) process, where the ARMA(2, 1) process becomes a hybrid of short‐ and long‐term mean‐reversion processes in the continuous time model. This model was applied to the analysis of the price of electricity futures (the PJM Monthly) traded on the New York Mercantile Exchange (NYMEX). The results showed that the model well explained the term structure of the volatility of futures price with respect to the time to maturity, which is important for estimating its trading risk. The expected long‐term fixed electricity price and its confidence interval were also estimated by using the obtained model function of the forward curve and its parameters. © 2010 Wiley Periodicals, Inc. Electr Eng Jpn, 172(4): 1–9, 2010; Published online in Wiley InterScience (www.interscience.wiley.com). DOI 10.1002/eej.20957
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
