Journal of Energy Markets

MCMC estimation of a multi-factor jump diffusion model for power prices

Rikard Green, Marcus Nossman


In this paper we generalize the electricity spot price model of Lucia and Schwartz by a two-factor model with jumps and stochastic volatility.We estimate the model on daily spot price data from the Nordic market using an approach that combines traditional statistical methods with a Markov chain Monte Carlo algorithm. Results show that the model captures most of the trajectorial and the statistical characteristics of the electricity spot price. Further, we find that inclusion of stochastic volatility is crucial to separate spikes from the normal price process. Moreover, we estimate that the correlation between the spot price and its stochastic volatility is negative.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to View our subscription options

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here