Modelling spot prices on the polish energy market

Abstract

The aim of this paper is to present a model of the Polish Power Exchange (PPE) energy spot prices. The proposed model is a result of a comprehensive and focused on the Polish market’s characteristics analysis (different markets are weakly interconnected, all of them possess their unique properties). The exchange located in Warsaw is relatively young (14 years of spot prices history) with few liquid contracts traded, which made the goal more challenging. The suggested dynamics of spot prices is driven by a mean-reverting jump-diffusion stochastic process with mixed-exponentially distributed jumps. The presented approach contains numerous custom-made solutions which have not been introduced in the literature yet. The mentioned jump size distribution combined with a mean-reverting diffusion is novel itself in electricity spot prices modelling.