Re: [Gretl-users] GARCH for day-ahead electricity prices

An ARIMA model is basically a model of the level of the process. A GARCH model is a model of the volatility of the process. There can of course be interactions between the volatility and the level (e.g. Garch in mean process). A complete answer to your questions would take an email equivalent to several chapters in a book. One uses the log of a variable when one sees the shock to the process as being multiplicative. I would think that the shock process in multiplicative for most price processes. Might I recommend a text such as Enders or similar as an introduction to time series analysis. Best Regards John 2009/10/1 Saqib Ilyas <msaqib(a)gmail.com&gt;: > Hi all, > I tried sending this email last night, but I don't think it has gotten > through. Perhaps my membership hadn't been processed as yet. > > I am using the 2006 till 2009 data for the New England pool of day-ahead > weighted average prices. I am not very fluent with econometrics, but I read > in some papers that GARCH has been used successfully to forecast electricity > wholesale prices. When I train a GARCH model on one year worth of data, and > forecast for the last 3 days of training data, I get a mean absolute error > of 3.6642%. The error increases to 27.826% when I use two years worth of > data, and decreases to 17.123% when using three years worth of past data. Is > this expected? > > Also, when I plot the actual and fitted data against time, the GARCH model > seems to have done a really bad job, compared to a default ARIMA model. I'm > guessing this might be because people are actually using ARIMA models with > (added) GARCH errors, so a simple GARCH model-based forecast isn't doing > exactly what they have done. Am I right? Why would the ARIMA be a better fit > than GARCH? > > One author mentioned that they took a log of the prices (in their case it > was hourly prices) before fitting a GARCH model. In your opinion, is that an > important factor in the kind of errors I am getting? > Thanks and best regards > -- > Muhammad Saqib Ilyas > PhD Student, Computer Science and Engineering > Lahore University of Management Sciences > _______________________________________________ > Gretl-users mailing list > Gretl-users(a)lists.wfu.edu > http://lists.wfu.edu/mailman/listinfo/gretl-users > -- John C Frain Economics Department Trinity College Dublin Dublin 2 Ireland www.tcd.ie/Economics/staff/frainj/home.html mailto:frainj@tcd.ie mailto:frainj@gmail.com _______________________________________________ Gretl-users mailing list Gretl-users(a)lists.wfu.edu http://lists.wfu.edu/mailman/listinfo/gretl-users