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Sonderforschungsbereich 649: Ökonomisches Risiko, Humboldt-Universität Berlin >
SFB 649 Discussion Papers, HU Berlin >
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http://hdl.handle.net/10419/56746
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| Title: | | Multivariate volatility modeling of electricity futures  |
| Authors: | | Bauwens, Luc Hafner, Christian M. Pierret, Diane |
| Issue Date: | | 2011 |
| Series/Report no.: | | SFB 649 discussion paper 2011-063 |
| 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. |
| Subjects: | | electricity futures dynamic conditional correlations forecasting multiplicative component |
| JEL: | | C32 C53 C58 |
| Document Type: | | Working Paper |
| Appears in Collections: | | SFB 649 Discussion Papers, HU Berlin
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