EconPapers    
Economics at your fingertips  
 

Linking Futures and Options Pricing in the Natural Gas Market

Francesco Rotondi ()
Additional contact information
Francesco Rotondi: Department of Finance, Bocconi University, 20136 Milano, Italy

Risks, 2025, vol. 13, issue 6, 1-28

Abstract: A robust model for natural gas prices should simultaneously capture the observed prices of both futures and options. While incorporating a seasonal factor in the convenience yield of the spot price effectively replicates forward curves, it proves insufficient for accurately modelling the options price surface. The latter is more sensitive to the volatility structure of the spot price process, which has a limited impact on futures pricing. In this paper, we analyse European natural gas spot, futures, and options prices throughout 2024 and propose a no-arbitrage model that integrates both a seasonal stochastic convenience yield and a local volatility factor. This framework enables a simultaneous and accurate fit of both forward curves and options prices.

Keywords: natural gas; futures prices; options prices; stochastic convenience yield; seasonality; local volatility (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2025
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/2227-9091/13/6/107/pdf (application/pdf)
https://www.mdpi.com/2227-9091/13/6/107/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:13:y:2025:i:6:p:107-:d:1670666

Access Statistics for this article

Risks is currently edited by Mr. Claude Zhang

More articles in Risks from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().

 
Page updated 2025-06-28
Handle: RePEc:gam:jrisks:v:13:y:2025:i:6:p:107-:d:1670666