Empirical Study of Spot Returns in the Australian Electricity Market

X. Lu and L.-F. Sugianto (Australia)


Financial Forecasting, Stochastic processes, Jump Diffusion, Monte Carlo methods, Modeling, Simulation, Electricity Spot Price.


With the introduction of competitive markets in the electricity industry, there is a growing demand for research in spot price modeling and forecasting. Electricity is different from other commodities due to its non-storable feature. Hence its spot price and return present unique characteristics, which spot price models should endeavor to capture. In essence, the objective of this paper is to analyze the spot returns and to establish the existence of asymmetric effect of spot returns on volatility and the relation between price jumps and negative skewness. Using the historical data from the Victorian market in Australia, both estimation and simulation results confirm the validity of our hypotheses. The research findings are important for model selection when modeling electricity spot price and its volatility, in that the above-mentioned factors should be considered when selecting electricity spot price models.

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