Analyzing second and third moments of electricity prices

The volatility of electricity prices is the important information for the risk management of electricity markets and the pricing of electricity financial derivatives. A multicycle GARCH-M model based on Gram-Charlier series expansion of the normal probability density function is proposed, in which the time trend, time-varying variance, time-vaying skewness, multicycles and the relationship among load and spot price can be fully taken into account. The numerical example based on the historical data of the Pennsylvania-New Jersey-Maryland electricity market shows that the time-varying variance and squared system load have a significant effect on the average daily electricity prices, there exist volatility clustering and weekly, semi-monthly, monthly, bimonthly, quarterly and semi-annual periods, and the second and third moments of electricity price series manifest the clear synchronous time-varying characteristics.