Monday, September 26, 2016 - 4:00pm
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University of Tsukuba, Tokyo
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The role of power exchange market is to provide an opportunity to meet supply and demand effectively through sell and buy orders. In the JEPX, the spot electricity prices are determined one day before delivery by constructing supply and demand curves whose intersection provides the contract price and volume. This procedure, in fact, maximizes the trading volume for sellers and buyers in the JEPX spot market and the supply and demand curves may be quite important to analyze the price-volume relationship for suppliers and demanders. However, one can usually observe partial information of these functions such as the contract price and volume in the market. The difficulty is that two functions may not be identified by the single point information.
The objective of the paper is to develop a methodology to estimate supply and demand functions from observable information in the JEPX. To this end, we demonstrate the following two approaches: In the first approach, we define sell and buy matching rates (SMRs and BMRs) using the contract volume divided by the total selling and the total buying volumes released from the JEPX. Then, we show that the price-volume functions corresponding to supply and demand functions are obtained by applying the coordinate transformations for the functions of SMR and BMR. Next, we develop the parametric equations approach, where the total selling and buying volumes are used to construct parametric representations of supply and demand functions. Empirical analysis illustrates that the estimation results from the matching rates approach are more consistent in terms of t-values regarding the monotonicity of supply and demand functions, although the parametric equations approach may have higher contribution rates to explain price fluctuations than that for the matching rates approach.
Yuji Yamada is a professor in the Faculty of Business Sciences and the chair of Master's Program in Systems Management in the Graduate School of Business Sciences, University of Tsukuba, Japan. He holds an undergraduate degree in Engineering from University of Chiba, a Master's degree and PhD in Engineering from Tokyo Institute of Technology. Before joining University of Tsukuba, he served as a postdoctoral scholar at Control and Dynamical Systems, Caltech. At University of Tsukuba, he teaches courses in Mathematical Finance and Financial Engineering. His current research interests are at the intersection between finance, optimization, and control theory.