Volatility characteristics of electricity price based on the normal distribution probability density function

Abstract

The distribution properties of electricity prices are the important information for the risk management of electricity markets and the pricing of electricity financial derivatives. With comprehensive consideration of the changing rules of the electricity spot price, a multicycle GARCH-M model based on Gram-Charlier series expansion of the normal density function is proposed, in which the second moment, third moment and multicycle of electricity price series are described by time-varying variance, time-varying skewness and sine function. The changing trend, volatility of second and third moments, multicycle and the relationship among load and spot price can be fully taken into account. The numerical example based on the historical data of the PJM market shows that time-varying variance and the system load square have a significant effect on the mean electricity prices, there exist second moment volatility clustering and weekly, semi-monthly, monthly, bimonthly, quarterly and semi-annual periods, and the second and third moments of electricity price series manifest the clear synchronous time-varying characteristics.