Modeling electricity loads in California: a continuous-time approach

In this paper we address the issue of modeling electricity loads and prices with diffusion processes. More specifically, we study models which belong to the class of generalized Ornstein-Uhlenbeck processes. After comparing p roperties of simulated paths with those of deseasonalized data from the Cal ifornia power market and performing out-of-sample forecasts we conclude tha t, despite certain advantages, the analyzed continuous-time processes are n ot adequate models of electricity load and price dynamics. (C) 2001 Elsevie r Science B.V. All rights reserved.