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Stochastic Path-Dependent Volatility Models for Price-Storage Dynamics in Natural Gas Markets and Discrete-Time Swing Option Pricing

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  • Jinniao Qiu
  • Antony Ware
  • Yang Yang

Abstract

This paper is devoted to the price-storage dynamics in natural gas markets. A novel stochastic path-dependent volatility model is introduced with path-dependence in both price volatility and storage increments. Model calibrations are conducted for both the price and storage dynamics. Further, we discuss the pricing problem of discrete-time swing options using the dynamic programming principle, and a deep learning-based method is proposed for numerical approximations. A numerical algorithm is provided, followed by a convergence analysis result for the deep-learning approach.

Suggested Citation

  • Jinniao Qiu & Antony Ware & Yang Yang, 2024. "Stochastic Path-Dependent Volatility Models for Price-Storage Dynamics in Natural Gas Markets and Discrete-Time Swing Option Pricing," Papers 2406.16400, arXiv.org.
    • Handle: RePEc:arx:papers:2406.16400
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