Modeling electricity forward curve dynamics in the Nordic

This chapter considers the modeling of electricity forward curve dynamics with parameterized volatility and correlation structures. We estimate the model parameters by using the Nordic market’s price data and show how the model can be implemented into everyday industry practice. Electricity markets are different from the usual financial markets and many other commodity markets due to the non-storability of electricity. The spot price of electricity is set by the short-term supply–demand equilibrium, and supply and demand must be in balance at each instance. Because the demand (supply) today does not necessarily have anything to do with the deman