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Studies in Nonlinear Dynamics & Econometrics

Ed. by Mizrach, Bruce

IMPACT FACTOR 2017: 0.855

CiteScore 2017: 0.76

SCImago Journal Rank (SJR) 2017: 0.668
Source Normalized Impact per Paper (SNIP) 2017: 0.894

Mathematical Citation Quotient (MCQ) 2017: 0.02

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Volume 10, Issue 3


Risk Management and the Role of Spot Price Predictions in the Australian Retail Electricity Market

Maxwell J Stevenson / Luiz Felipe Moreira do Amaral / Maurice Peat
Published Online: 2006-09-22 | DOI: https://doi.org/10.2202/1558-3708.1383

This study investigates the extent to which predicted electricity spot prices from a statistical model, along with consensus forecasts issued by the Australian Financial Market Association (AFMA), provide unbiased price estimates of a forward contract price over a specified time to expiration. The statistical model is a regime switching time series model which is based on the dynamics of the market mechanism. To evaluate a price estimate, two criteria are utilized in order to conclude appropriateness for use in the marking-to-market process. First is the requirement that the predicted prices converge to the spot price at expiration of a hedging contract. The second criterion refers to the mis-pricing due to the price estimates over the days leading up to the contract expiration. Over the data period under consideration, the ranking of alternatives for generating price predictions is clear. On both criteria the Stevenson (2001) model is preferred. Of significance is the lack of support for the consensus (market) prices. They do not converge to the spot price at equilibrium and, further, they generate a considerable overvaluation of the risk management portfolio.

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Published Online: 2006-09-22

Citation Information: Studies in Nonlinear Dynamics & Econometrics, Volume 10, Issue 3, ISSN (Online) 1558-3708, DOI: https://doi.org/10.2202/1558-3708.1383.

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