How do you define returns when price may be negative (electricity price)?
k-war
I'm trying to model GARCH volatility on electricity prices. Typically the first step is to use prices to obtain log returns to make them stationary. I have encountered a small problem however: electricity prices can go negative. So returns defined as \begin{array}{cc}
r_t:=\log(P_t / P_{t-1})
\end{array} will produce some undefined values. I have gotten around it by using differences \begin{array}{cc}
r_t:=P_t - P_{t-1},
\end{array} but I'm wondering if there is a better method out there.