Invited Session Wed.1.H 3027

Wednesday, 10:30 - 12:00 h, Room: H 3027

Cluster 7: Finance & economics [...]

Price dynamics in energy markets

 

Chair: Florentina Paraschiv

 

 

Wednesday, 10:30 - 10:55 h, Room: H 3027, Talk 1

Péter Erdős
Have oil and gas prices got separated?

 

Abstract:
Prices are driven by oil prices only if there is sufficient inter-fuel competition in the
US, or if gas arbitrage is possible across the Atlantic. In the period 1994–2011 interfuel
replacement was marginal in the US; therefore, the coupling of oil and gas
prices depended on intercontinental trade movements. Until the end of 2008 the US
depended on gas imports, contributing to higher average gas prices in the US than
those in Europe and attracting export to the US. Thus, the Atlantic arbitrage, taking
into account transaction costs, forced gas prices to converge in the US and in Europe
in the long run. Since European gas prices react to price developments in the oil
market, the Atlantic arbitrage also reinforced oil-gas linkage in the US. Since 2009
US oil and gas prices have decoupled due to limits to arbitrage across the Atlantic.
Despite gas extraction from shale formations boosting the US gas inventories, which
in turn depresses prices below the European level, US export is not viable because of
a lack of liquefying infrastructure and administrative obstacles.

 

 

Wednesday, 11:00 - 11:25 h, Room: H 3027, Talk 2

Michael Schuerle
Price dynamics in gas markets

Coauthor: Florentina Paraschiv

 

Abstract:
Modeling natural gas futures prices is essential for valuation purposes as well as for hedging strategies in energy risk management. We present a general multi-factor affine diffusion model which incorporates the joint stylized features of both spot and futures prices. The model is brought into state space form on which Kalman Filter techniques are applied to evaluate the maximum likelihood function. We further build the basis for the construction of a daily gas price forward curve. These prices take into account the seasonal structures of spot prices and are consistent under the arbitrage-free condition with the observed market prices of standard products that provide gas delivery over longer periods. Finally the performance of the models is illustrated comparing historical and model implied price characteristics.

 

 

Wednesday, 11:30 - 11:55 h, Room: H 3027, Talk 3

Florentina Paraschiv
Modelling negative electricity prices

 

Abstract:
We evaluate different financial and time series models such as: mean reversion with jump processes, ARMA, GARCH usually applied for electricity price simulations. Since 2008 market design allows for negative prices at the European Energy Exchange (EEX), which occurred for several hours in the last decades. Up to now, only a few financial and time-series approaches exist, which are able to capture negative prices. We propose a new model for simulating energy spot prices taking into account their jumping and spiking behavior. The model parameters are calibrated using the historical hourly price forward curves for EEX and Phelix, as well as the spot price dynamics. Parameters for the spikes which characterize the spot dynamics are derived on an hourly basis. Market clearing prices are derived given an observed price forward curve and an algorithm deciding whether a spike or a Poisson jump occurs.

 

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