A Stochastic Model for Natural Gas Consumption: An Application for Turkey

Ahmet Goncu, Mehmet Karahan and Tolga Kuzubas

Iktisat Isletme ve Finans, 2013, vol. 28, issue 332, 33-46

Abstract: In this paper, we utilize a mean reverting stochastic process to model the dynamic behaviour of natural gas consumption, where a Brownian motion drives the noise. We employ daily data on natural gas consumption from Istanbul, Turkey to estimate our model and evaluate the forecast performance by backtesting of the model at different forecast horizons using relative mean squared errors. We document that time-series observations on natural gas consumption exhibits stationarity, strong seasonality, mean reversion, and serial correlation. Based on our approach, the conditional distribution of natural gas consumption is derived, and it can be used for forecasting and pricing contingent claims on natural gas consumption.

Keywords: Natural Gas Consumption; Mean Reverting Stochastic Processes; Backtesting (search for similar items in EconPapers)
JEL-codes: G13 G17 (search for similar items in EconPapers)
Date: 2013
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