Gas Storage Valuation Using a Monte Carlo Method
Developed countries increasingly rely on gas storage for security of supply. Widespread deregulation has created markets that help assign an objective value to existing and new to build storages. Storage valuation is nevertheless a challenging task if we consider both the financial and physical aspects of storage. In this paper we develop a Monte Carlo valuation method, which can incorporate realistic gas price dynamics and complex physical constraints. In specific we extend the Least Squares Monte Carlo method for American options to storage valuation. We include numerical results and show ways to improve computational speed.
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- Manuel Moreno & Javier R. Navas, 2001.
"On the robustness of least-squares Monte Carlo (LSM) for pricing American derivatives,"
Economics Working Papers
543, Department of Economics and Business, Universitat Pompeu Fabra.
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