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A Stochastic Model for Natural Gas Consumption: An Application for Turkey

Author

Listed:
  • Ahmet GÖNCÜ

    (Xi’an Jiatong Liverpool University)

  • Mehmet Oğuz KARAHAN

    (Boğaziçi Üniversitesi)

  • Tolga Umut KUZUBAŞ

    (Bogazici Universitesi)

Abstract

In this paper, we utilize a mean reverting stochastic process to model the dynamic behaviour of natural gas consumption, where a Brownian motion drives the noise. We employ daily data on natural gas consumption from Istanbul, Turkey to estimate our model and evaluate the forecast performance by backtesting of the model at different forecast horizons using relative mean squared errors. We document that time-series observations on natural gas consumption exhibits stationarity, strong seasonality, mean reversion, and serial correlation. Based on our approach, the conditional distribution of natural gas consumption is derived, and it can be used for forecasting and pricing contingent claims on natural gas consumption.

Suggested Citation

  • Ahmet GÖNCÜ & Mehmet Oğuz KARAHAN & Tolga Umut KUZUBAŞ, 2013. "A Stochastic Model for Natural Gas Consumption: An Application for Turkey," Iktisat Isletme ve Finans, Bilgesel Yayincilik, vol. 28(332), pages 33-46.
  • Handle: RePEc:iif:iifjrn:v:28:y:2013:i:332:p:33-46
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    Cited by:

    1. Serli Kiremitciyan & Ahmet Goncu & Tolga Umut Kuzubas, 2014. "A Comparison of Stochastic Models of Natural Gas Consumption," Working Papers 2014/10, Bogazici University, Department of Economics.

    More about this item

    Keywords

    Natural Gas Consumption; Mean Reverting Stochastic Processes; Backtesting;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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