Electricity forward curves with thin granularity: Theory and empirical evidence in the hourly EPEXspot market

We put forward a constructive definition of electricity forward price curve with crosssectional timescale encompassing hourly frequency upward. The curve is jointly consistent to both riskneutral market information, as represented by baseload and peakload futures quotes, and historical market information, as mirrored by periodical patterns exhibited by time series of dayahead prices. On a methodological ground, we combine nonparametric filtering with monotone convex interpolation in a way that the resulting forward curve is pathwise smooth and monotonic, cross-sectionally stable, and time local. On an empirical ground, we exhibit these features in the joint context of EPEX Spot and EEX Derivative markets. A backtesting analysis assesses the relative quality of our forward curve estimate compared to the benchmark market model of Benth et al. (2007).