Multivariate volatility modeling of electricity futures

Luc Bauwens, Christian Hafner and Diane Pierret

No 2011-063, SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk

Abstract: We model the dynamic volatility and correlation structure of electricity futures of the European Energy Exchange index. We use a new multiplicative dynamic conditional correlation (mDCC) model to separate long-run from short-run components. We allow for smooth changes in the unconditional volatilities and correlations through a multiplicative component that we estimate nonparametrically. For the short-run dynamics, we use a GJR-GARCH model for the conditional variances and augmented DCC models for the conditional correlations. We also introduce exogenous variables to account for congestion and delivery-date effects in short-term conditional variances. We find different correlation dynamics for long and short-term contracts and the new model achieves higher forecasting performance compared to a standard DCC model.

Keywords: electricity futures; dynamic conditional correlations; forecasting; multiplicative component (search for similar items in EconPapers)
JEL-codes: C32 C53 C58 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/56746/1/671177397.pdf (application/pdf)

Related works:
Journal Article: MULTIVARIATE VOLATILITY MODELING OF ELECTRICITY FUTURES (2013)
Working Paper: Multivariate volatility modeling of electricity futures (2013)
Working Paper: Multivariate volatility modeling of electricity futures (2011)
Working Paper: Multivariate volatility modeling of electricity futures (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb649:sfb649dp2011-063

Access Statistics for this paper

More papers in SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().