A Common Shock Model for multidimensional electricity intraday price modelling with application to battery valuation
ArXiv ID: 2307.16619 “View on arXiv”
Authors: Unknown
Abstract
In this paper, we propose a multidimensional statistical model of intraday electricity prices at the scale of the trading session, which allows all products to be simulated simultaneously. This model, based on Poisson measures and inspired by the Common Shock Poisson Model, reproduces the Samuelson effect (intensity and volatility increases as time to maturity decreases). It also reproduces the price correlation structure, highlighted here in the data, which decreases as two maturities move apart. This model has only three parameters that can be estimated using a moment method that we propose here. We demonstrate the usefulness of the model on a case of storage valuation by dynamic programming over a trading session.
Keywords: Poisson measures, Samuelson effect, moment method estimation, dynamic programming, Electricity
Complexity vs Empirical Score
- Math Complexity: 7.5/10
- Empirical Rigor: 6.0/10
- Quadrant: Holy Grail
- Why: The paper employs advanced mathematics including Poisson measures and dynamic programming for a specialized model, while also demonstrating strong empirical rigor through data analysis on French and German markets, back-testing with battery valuation, and proposing an estimation method.
flowchart TD
Goal["Research Goal: Model multidimensional<br>intraday electricity prices<br>to value battery storage"]
Data["Data: European Power Exchange<br>Intraday Price Data"]
Model["Methodology: Common Shock<br>Poisson Model"]
Est["Computational Process:<br>Moment Method Estimation<br>3 parameters only"]
Sim["Computational Process:<br>Dynamic Programming<br>for Battery Valuation"]
Out["Key Outcomes:<br>1. Reproduces Samuelson Effect<br>2. Captures Price Correlations<br>3. Enables accurate storage valuation"]
Goal --> Data
Data --> Model
Model --> Est
Est --> Sim
Sim --> Out