Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/56746
Authors: 
Bauwens, Luc
Hafner, Christian M.
Pierret, Diane
Year of Publication: 
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

Files in This Item:
File
Size
1.36 MB
268.11 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.