Modeling and Forecasting the Distribution of Energy Forward Returns - Evidence from the Nordic Power Exchange

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  • Rp13 19

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  • rp13_19

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We explore the structure of transaction records from NASDAQ OMX Commodities Europe back to 2006 and analyze base load forwards with the Nordic system price on electric power as reference. Following a discussion of the appropriate rollover scheme we incorporate selected realizedmeasures of volatility in a Realized EGARCH framework for the joint modeling of returns and realized measures of volatility. Conditional variances are shown to vary over time, which stresses the importance of portfolio reallocation for risk management and other purposes. We document gains from utilizing data at higher frequencies by comparing to ordinary EGARCH models that are nested in the Realized EGARCH. We obtain improved fit, in-sample as well as out-of-sample. In-sample in terms of improved loglikelihood and out-of-sample in terms of 1-, 5-, and 20-step-ahead regular and bootstrapped rolling-window forecasts. The Realized EGARCH forecasts are statistically superior to ordinary EGARCH forecasts.
OriginalsprogEngelsk
UdgivelsesstedAarhus
UdgiverInstitut for Økonomi, Aarhus Universitet
Antal sider33
StatusUdgivet - 2013
SerietitelCREATES Research Papers
Nummer2013-19

    Forskningsområder

  • Financial Volatility, Realized GARCH, High Frequency Data, Electricity, Power, Forecasting, Realized Variance, Realized Kernel, Model Confidence Set

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