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The volatility of electricity price is the important information for the risk management of power markets and the pricing of power financial derivatives. A GARCH-M model in which the multi-cycle properties of electricity price series are described by dummy variable and sine function is proposed. The model is easy to select the order, and holds parsimonious scale of estimated parameters and high practical application value. The numerical example based on the historical data of the PJM market shows that the hetero-scedasticity and the load squares have a significant effect on the mean electricity price, and there exists volatility clustering.
Date of Conference: 23-25 Aug. 2012