Modelling of Fuel- and Energy-Switching Prices by Mean-Reverting Processes and Their Applications to Alberta Energy Markets - Université de Versailles Saint-Quentin-en-Yvelines Access content directly
Journal Articles Mathematics Year : 2021

Modelling of Fuel- and Energy-Switching Prices by Mean-Reverting Processes and Their Applications to Alberta Energy Markets

Weiliang Lu
Alexis Arrigoni
  • Function : Author
Anatoliy Swishchuk
  • Function : Author

Abstract

This paper introduces a fuel-switching price to the Alberta market, which is designed for encouraging power plant companies to switch from coal to natural gas when they produce electricity; this has been successfully applied to the European market. Moreover, we consider an energy-switching price which considers power switch from natural gas to wind. We modeled these two prices using five mean reverting processes including a Regime-switching processes, Lévy-driven Ornstein–Uhlenbeck process and Inhomogeneous Geometric Brownian Motion, and estimate them based on multiple procedures such as Maximum likelihood estimation and Expectation-Maximization algorithm. Finally, this paper proves previous results applied to the Albertan Market where the jump modeling technique is needed when modeling fuel-switching data. In addition, it not only gives promising conclusions on the necessity of introducing Regime-switching models to the fuel-switching data, but also shows that the Regime-switching model is better fitted to the data.
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hal-04488619 , version 1 (04-03-2024)

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Weiliang Lu, Alexis Arrigoni, Anatoliy Swishchuk, Stéphane Goutte. Modelling of Fuel- and Energy-Switching Prices by Mean-Reverting Processes and Their Applications to Alberta Energy Markets. Mathematics , 2021, 9 (7), pp.709. ⟨10.3390/math9070709⟩. ⟨hal-04488619⟩
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