EMD Based Value at Risk Estimate Algorithm for Electricity Markets

Abstract

With the electricity market reform in recent decades, the electricity price volatility brings more uncertainty and greater risks. This paper proposes a novel risk measurement approach Based on the EMD algorithm to estimate Value at Risk (VaR) in the electricity market. The EMD algorithm is used to decompose the time series into several intrinsic mode functions (IMFs) and one residual component. Then the decomposed parts will be calculate with the Exponential Weighted Moving Average (EWMA) model. Empirical studies in the five Australian electricity markets suggest that the proposed algorithm outperforms the benchmark EWMA model, in terms of conventional performance evaluation criteria for the model reliability.