UK Gas Markets: the Market Price of Risk and Applications to Multiple Interruptible Supply Contracts

Álvaro Cartea () and Thomas Williams

No 608, Birkbeck Working Papers in Economics and Finance from Birkbeck, Department of Economics, Mathematics & Statistics

Abstract: We employ the Schwartz and Smith (2000) model to explore the dynamics of the UK gas markets. We discuss in detail the short-term and long-term market prices of risk borne by the market players and how deviations from expected cyclical storage affect the short-term market price of risk. Finally, we illustrate an application of the model by pricing interruptible supply contracts that are currently traded in the UK.

Keywords: Interruptible supply contracts; gas markets; commodities; market price of short-term and long-term risk; multi-exercise Bermudan options; convenience yield. (search for similar items in EconPapers)
JEL-codes: C61 G12 (search for similar items in EconPapers)
Date: 2006-09
New Economics Papers: this item is included in nep-ene, nep-fin and nep-fmk
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Citations: View citations in EconPapers (7)

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https://eprints.bbk.ac.uk/id/eprint/26935 First version, 2006 (application/pdf)

Related works:
Journal Article: UK gas markets: The market price of risk and applications to multiple interruptible supply contracts (2008)
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