Backtesting Expected Shortfall with a skewed exponential power distribution in electricity markets

Aymeric Thibault (1) , Pascal Bondon (1)

1 L2S - Laboratoire des signaux et systèmes

Interest in risk measurement for spot price has increased since the worldwide deregulation and liberalization of electricity started in the early 90's. This paper is focused on quantifying risk for the Swedish spot price. Our analysis is based on a generalized autoregressive conditional heteroskedastic (GARCH) process with skewed exponential power innovations to model the stochastic component of the price. A Expected Shortfall (ES) backtesting procedure is presented and our model performance is compared to commonly used distributions in risk measurement. We show that the skewed exponential power distribution outperforms the competitors for the upside risk, which is of high interest as electricity spot prices are positively skewed.

Domaines: Théorie [stat.TH]; Traitement du signal et de l'image [eess.SP]

Aymeric Thibault, Pascal Bondon. Backtesting Expected Shortfall with a skewed exponential power distribution in electricity markets. 24th European Signal Processing Conference (EUSIPCO), Aug 2016, Budapest, Hungary. pp.2141-2145, ⟨10.1109/eusipco.2016.7760627⟩. ⟨hal-01578831⟩