Forecasting time-varying covariance matrices in intradaily electricity spot prices

Résumé

This paper deals with analysing and forecasting intradaily volatility in electricity spot prices. We analyse the hourly spot prices from the Argentine Electricity Market by grouping prices in three daily series (block bids). We estimate the VAR model for the conditional mean structure and several multivariate analysis based on the multivariate GARCH models, specifically the orthogonal GARCH by Alexander (2000) and the constrained multivariate GARCH by Engle and Mezrich (1996). We also measure the forecasting performance of the daily block bid volatilities and covariances under both approaches obtaining similar results. This methodology could be used for managing risk of block bid portfolios and also for the valuation of derivatives on intradaily time-blocks of electricity spot prices.