A Generalized Schwartz Model for Energy Spot Prices - Estimation using a Particle MCMC Method

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We propose an energy spot price model featuring a two-factor price process and a two-component stochastic volatility process. The first factor in the price process captures the normal variations; the second accounts for spikes. The two-component volatility allows for a flexible autocorrelation structure. Instead of using various filtering techniques for splitting the two factors, as often found in the literature, we estimate the model in one step using an adaptive MCMC method with a Rao-Blackwellized particle filter. We fit the model to UK natural gas spot prices and investigate the importance of spikes and stochastic volatility. We find that the inclusion of stochastic volatility is crucial and that it strongly impacts the jump intensity in the spike process. Furthermore, our estimation method enables us to consider both continuous and purely jump-driven volatility processes, and thereby assess if the volatility specification also influences the spike process and the overall model fit.
OriginalsprogEngelsk
UdgivelsesstedAarhus
UdgiverInstitut for Økonomi, Aarhus Universitet
Antal sider35
StatusUdgivet - 12 okt. 2015
SerietitelCREATES Research Papers
Nummer2015-46

    Forskningsområder

  • Energy prices, Multi-factor model, Particle filters, MCMC, Stochastic volatility

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