Electricity intraday price modeling with marked Hawkes processes

Abstract

We consider a 2-dimensional marked Hawkes process with increasing baseline intensity in order to model prices on electricity intraday markets. This model allows to represent different empirical facts such as increasing market activity, random jump sizes but above all microstructure noise through the signature plot. This last feature is of particular importance for practitioners and has not yet been modeled on those particular markets. We provide analytic formulas for first and second moments and for the signature plot, extending the classic results of Bacry et al. [2] in the context of Hawkes processes with random jump sizes and time dependent baseline intensity. The tractable model we propose is estimated on German data and seems to fit the data well. We also provide a result about the convergence of the price process to a Brownian motion with increasing volatility at macroscopic scales, highlighting the Samuelson effect.

Equilibrium price in intraday electricity markets

“…From a financial research point of view, intraday electricity markets offer a remarkable case of short-term physical futures market. They present convergent stylized facts about liquidity and volatility of intraday prices; liquidity depth and volatility both increase with time closer to delivery (see Kiesel and Paraschiv (2017), Balardy (2018), Kremer et al (2020), Glas et al (2020), Deschatre and Gruet (2021)). This paper is a contribution to the understanding of the optimal trading strategy and of the drivers of the volatility and the liquidity of intraday markets.…”

“…Then we observe increasing swings of prices: in the last 5% of the period, the price loses and gains back 2 € in a few minutes. As a comparison, Figure 2d provides real trajectories of intraday prices on EEX for three different hours of delivery, which are extracted from Deschatre and Gruet (2021) with the courtesy of the authors. We clearly observe the increase of the volatility price closer to maturity and the similarity between our model simulation (b) and the behavior of the intraday price (d).…”