@article{21855,
  keywords = {Energy Analysis and Environmental Impacts Division, Stochastic modeling, Energy spot prices},
  author = {Somayeh Heydari and Afzal S Siddiqui},
  title = {Valuing a gas-fired power plant: A comparison of ordinary linear models, regime-switching approaches, and models with stochastic volatility},
  abstract = {<p>Energy prices are often highly volatile with unexpected spikes. Capturing these sudden spikes may lead to more informed decision-making in energy investments, such as valuing gas-fired power plants, than ignoring them. In this paper, non-linear regime-switching models and models with mean-reverting stochastic volatility are compared with ordinary linear models. The study is performed using UK electricity and natural gas daily spot prices and suggests that with the aim of valuing a gas-fired power plant with and without operational flexibility, non-linear models with stochastic volatility, specifically for logarithms of electricity prices, provide better out-of-sample forecasts than both linear models and regime-switching models.</p>},
  year = {2009},
  journal = {Energy Economics },
  volume = {Vol. 32},
  pages = {17},
  month = {10/2009},
}