Multivariate volatility modeling of electricity futures

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State: Public
Version: Author's accepted manuscript
Serval ID
serval:BIB_895910E4556B
Type
Article: article from journal or magazin.
Collection
Publications
Title
Multivariate volatility modeling of electricity futures
Journal
Journal of Applied Econometrics
Author(s)
Bauwens  L., Hafner  C.M., Pierret  D.
ISSN
0883-7252
Publication state
Published
Issued date
08/2013
Peer-reviewed
Oui
Volume
28
Number
5
Pages
743-761
Language
english
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
Dynamic conditional correlation, Garch model, Generalized arch, Spot prices, Exchange
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Create date
05/04/2016 18:55
Last modification date
20/08/2019 15:48
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