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|Title:||Multivariate volatility modeling of electricity futures |
Hafner, Christian M.
|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.|
dynamic conditional correlations
|Document Type:||Working Paper|
|Appears in Collections:||SFB 649 Discussion Papers, HU Berlin|
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