 Natural gas storage valuation, optimization, market and credit risk managementMatt Thompson Journal of Commodity Markets, 2016, vol. 2, issue 1, 26-44 Abstract: This paper presents a method for optimizing, pricing and hedging gas storage facilities and leasing contracts in the presence of counter-party credit risk (CCR). A reduced factor, time-independent and Markovian representation of the forward curve is developed that explains 99% of the curve dynamics and incorporates implied volatility seasonality. A system of partial differential equations for valuation and optimization is derived. The resulting PDEs are solved using a specialized implementation of the radial basis function (RBF) technique. The combination of the time-independent, Markovian, framework facilitates the optimization of high-deliverability storage contracts. In addition, as a by-product of the RBF-PDE solution process, a series of analytic RBF expansions for the value of the gas storage contract is produced. These expansions can be differentiated analytically at virtually no cost to obtain hedging statistics. These expansions can also facilitate the millions of individual contract valuations required to price and hedge CCR. Keywords: Subject classifications; Natural resources; Energy; Dynamic programming; Application area of review; Natural resources/energy (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jocoma:v:2:y:2016:i:1:p:26-44 DOI: 10.1016/j.jcomm.2016.07.004 Access Statistics for this article Journal of Commodity Markets is currently edited by Marcel Prokopczuk, Betty Simkins and Sjur Westgaard More articles in Journal of Commodity Markets from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.