Abstract:Reliable gas price forecasts are an essential information for gas and energy traders, for risk managers and also economists. However, ahead of the war in Ukraine Europe began to suffer from substantially increased and volatile gas prices which culminated in the aftermath of the North Stream 1 explosion. This shock changed both trend and volatility structure of the prices and has considerable effects on forecasting models. In this study we investigate whether modern machine learning methods such as neural networks are more resilient against such changes than statistical models such as autoregressive moving average (ARMA) models with conditional heteroskedasticity, or copula-based time series models. Thereby the focus lies on interval forecasting and applying respective evaluation measures. As data, the Front Month prices from the Dutch Title Transfer Facility, currently the predominant European exchange, are used. We see that, during the shock period, most models underestimate the variance while overestimating the variance in the after-shock period. Furthermore, we recognize that, during the shock, the simpler models, i.e. an ARMA model with conditional heteroskedasticity and the multilayer perceptron (a neural network), perform best with regards to prediction interval coverage. Interestingly, the widely-used long-short term neural network is outperformed by its competitors.
Abstract:We study the prices of European Emission Allowances (EUA), whereby we analyze their uncertainty and dependencies on related energy markets. We propose a probabilistic multivariate conditional time series model that exploits key characteristics of the data. The forecasting performance of the proposed model and various competing models is evaluated in an extensive rolling window forecasting study, covering almost two years out-of-sample. Thereby, we forecast 30-steps ahead. The accuracy of the multivariate probabilistic forecasts is assessed by the energy score. We discuss our findings focusing on volatility spillovers and time-varying correlations, also in view of the Russian invasion of Ukraine.