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Estimation of the number of factors in a multi-factorial Heath-Jarrow-Morton model in electricity markets

Abstract : In this paper we study the calibration of specific multi-factorial Heath-Jarrow-Morton models to electricity market prices, with a focus on the estimation of the optimal number of factors. We describe a common statistical procedure based on likelihood maximisation and Akaike / Bayesian information criteria, in the case of calibration on futures prices, as well as on both spot and futures prices. We perform a detailed analysis on 6 European markets: Belgium, France, Germany, Italy, Switzerland and UK. The results show a lot of similarities on all the markets considered, especially on the optimal number of factors equal to 5; and on the behaviour of the different factors.
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https://hal.archives-ouvertes.fr/hal-02880824
Contributor : Olivier Féron Connect in order to contact the contributor
Submitted on : Thursday, June 25, 2020 - 11:35:43 AM
Last modification on : Wednesday, November 17, 2021 - 12:31:57 PM
Long-term archiving on: : Wednesday, September 23, 2020 - 4:12:06 PM

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Olivier Feron, Pierre Gruet. Estimation of the number of factors in a multi-factorial Heath-Jarrow-Morton model in electricity markets. 2020. ⟨hal-02880824⟩

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