Gas storage valuation and hedging. A quantification of the model risk
This paper focuses on the valuation and hedging of gas storage facilities, using a spot-based valuation framework coupled with a financial hedging strategy implemented with futures contracts. The first novelty consist in proposing a model that unifies the dynamics of the futures curve and the spot price, which accounts for the main stylized facts of the US natural gas market, such as seasonality and presence of price spikes. The second aspect of the paper is related to the quantification of model uncertainty related to the spot dynamics.
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.:
- Les Clewlow & Chris Strickland, 1999. "A Multi-Factor Model for Energy Derivatives," Research Paper Series 28, Quantitative Finance Research Centre, University of Technology, Sydney.
- Bjerksund, Petter & Stensland, Gunnar & Vagstad, Frank, 2008.
"Gas Storage Valuation: Price Modelling v. Optimization Methods,"
2008/20, Department of Business and Management Science, Norwegian School of Economics.
- 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.
- Longstaff, Francis A & Schwartz, Eduardo S, 2001. "Valuing American Options by Simulation: A Simple Least-Squares Approach," Review of Financial Studies, Society for Financial Studies, vol. 14(1), pages 113-147.
- Rama Cont, 2006. "Model uncertainty and its impact on the pricing of derivative instruments," Post-Print halshs-00002695, HAL.
- Ben Hambly & Sam Howison & Tino Kluge, 2009. "Modelling spikes and pricing swing options in electricity markets," Quantitative Finance, Taylor & Francis Journals, vol. 9(8), pages 937-949.
When requesting a correction, please mention this item's handle: RePEc:arx:papers:1312.3789. 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: (arXiv administrators)
If references are entirely missing, you can add them using this form.