Gas storage valuation applying numerically constructed recombining trees
The liberalization of European natural gas markets forces market participants to base their decisions on market prices. For owners and operators of natural gas storage facilities it is therefore necessary to take market prices into account for their decisions. In this framework this paper provides a new approach for the valuation of natural gas storage facilities. Using stochastic dynamic programming on multinomial recombining trees, the optimal storage strategy and value are determined. For this we (i) estimate the deterministic and random impacts on natural gas prices, (ii) simulate gas prices considering the results of the first step, (iii) construct numerically the recombining tree using the simulation results, (iv) determine the optimal storage strategy and value. Besides the determination of the optimal storage value and operation schedule the value quantiles are calculated. Via the quantiles relevant risk measures like value at risk and conditional value at risk are determined.
Volume (Year): 216 (2012)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www.elsevier.com/locate/eor|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kjarstad, Jan & Johnsson, F., 2007. "Prospects of the European gas market," Energy Policy, Elsevier, vol. 35(2), pages 869-888, February.
- Patrick Jaillet & Ehud I. Ronn & Stathis Tompaidis, 2004. "Valuation of Commodity-Based Swing Options," Management Science, INFORMS, vol. 50(7), pages 909-921, July.
- Hahn, Warren J. & Dyer, James S., 2008. "Discrete time modeling of mean-reverting stochastic processes for real option valuation," European Journal of Operational Research, Elsevier, vol. 184(2), pages 534-548, January.
- Petter Bjerksund & Gunnar Stensland & Frank Vagstad, 2011.
"Gas Storage Valuation: Price Modelling v. Optimization Methods,"
The Energy Journal,
International Association for Energy Economics, vol. 0(Number 1), pages 203-228.
- Bjerksund, Petter & Stensland, Gunnar & Vagstad, Frank, 2008. "Gas Storage Valuation: Price Modelling v. Optimization Methods," Discussion Papers 2008/20, Department of Business and Management Science, Norwegian School of Economics.
- Schlüter, Stephan & Davison, Matt, 2010. "Pricing an European gas storage facility using a continuous-time spot price model with GARCH diffusion," FAU Discussion Papers in Economics 02/2010, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
- Philippe Artzner & Freddy Delbaen & Jean-Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228.
- Byers, Joe Wayne, 2006. "Commodity storage valuation: A linear optimization based on traded instruments," Energy Economics, Elsevier, vol. 28(3), pages 275-287, May.
- Nicola Secomandi, 2010. "Optimal Commodity Trading with a Capacitated Storage Asset," Management Science, INFORMS, vol. 56(3), pages 449-467, March.
- Rene Carmona & Michael Ludkovski, 2010. "Valuation of energy storage: an optimal switching approach," Quantitative Finance, Taylor & Francis Journals, vol. 10(4), pages 359-374.
- Olivier Bardou & Sandrine Bouthemy & Gilles Pages, 2009. "Optimal Quantization for the Pricing of Swing Options," Applied Mathematical Finance, Taylor & Francis Journals, vol. 16(2), pages 183-217. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:216:y:2012:i:1:p:178-187. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.