Calibration window selection based on change-point detection for forecasting electricity prices

We employ a recently proposed change-point detection algorithm, the Narrowest-Over-Threshold (NOT) method, to select subperiods of past observations that are similar to the currently recorded values. Then, contrarily to the traditional time series approach in which the most recent τ observations are taken as the calibration sample, we estimate autoregressive models only for data in these subperiods. We illustrate our approach using a challenging dataset - day-ahead electricity prices in the German EPEX SPOT market - and observe a significant improvement in forecasting accuracy compared to commonly used approaches, including the Autoregressive Hybrid Nearest Neighbors (ARHNN) method.