Abstract
In this chapter, we propose the dynamic behavior of the Colombian electricity spot prices by using a Lévy-type Cox process. The mean-reverting process is frequently applied to electricity markets, due to certain characteristics of the electricity such as spikes which are intrinsic to electricity prices. Modeling spikes for a particular electricity market is a great challenge. We propose a two factor model for the Colombian spot price dynamics, where one factor is driven by a Ornstein Uhlenbeck process based on Brownian motion, which deals with normal variation, while other factor is driven by a Lévy-type Cox process and specifies price spikes. We discuss the methodology of calibration and estimation of parameters of electricity spot prices for the Colombian Markets.
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The authors would like to thank the referees for their comments and suggestions, which have improved the presentation of this chapter.
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Arunachalam, V., Cancino, R. (2015). Modeling Electricity Spot Price Dynamics by Using Lévy-Type Cox Processes: An Application to Colombian Market. In: Londoño, J., Garrido, J., Hernández-Hernández, D. (eds) Actuarial Sciences and Quantitative Finance. Springer Proceedings in Mathematics & Statistics, vol 135. Springer, Cham. https://doi.org/10.1007/978-3-319-18239-1_1
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