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Journal articles (2017), European Journal of Operational Research, 261 (2), pp. 715-734

Electricity Forward Curves with Thin Granularity: Theory and Empirical Evidence in the Hourly EPEX Spot Market

CALDANA R., FUSAI G., RONCORONI Andrea

We propose a constructive definition of electricity forward price curve with cross-sectional timescales featuring hourly frequency on. The curve is jointly consistent with both risk-neutral market informa- tion represented by baseload and peakload futures quotes, and historical market information, as mirrored by periodical patterns exhibited by the time series of day-ahead prices. From a methodological stand- point, we combine nonparametric filtering with monotone convex interpolation such that the resulting forward curve is pathwise smooth and monotonic, cross-sectionally stable, and time local. From an em- pirical standpoint, we exhibit these features in the context of EPEX Spot and EEX Derivative markets. We perform a backtesting analysis to assess the relative quality of our forward curve estimate compared to the benchmark market model of Benth, Koekebakker, and Ollmar (2007).

CALDANA, R., FUSAI, G. and RONCORONI, A. (2017). Electricity Forward Curves with Thin Granularity: Theory and Empirical Evidence in the Hourly EPEX Spot Market. European Journal of Operational Research, 261(2), pp. 715-734.