Gas Storage Valuation Using a Monte Carlo Method

Alexander Boogert and Cyriel de Jong
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Alexander Boogert: Department of Economics, Mathematics & Statistics, Birkbeck

No 704, Birkbeck Working Papers in Economics and Finance from Birkbeck, Department of Economics, Mathematics & Statistics

Abstract: 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.

Date: 2007-01
New Economics Papers: this item is included in nep-cmp and nep-ene
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https://eprints.bbk.ac.uk/id/eprint/43979/1/43979.pdf First version, 2007 (application/pdf)

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