Stochastic Path-Dependent Volatility Models for Price-Storage Dynamics in Natural Gas Markets and Discrete-Time Swing Option Pricing

Jinniao Qiu, Antony Ware and Yang Yang

Papers from arXiv.org

Abstract: This paper is devoted to the price-storage dynamics in natural gas markets. A novel stochastic path-dependent volatility model is introduced with path-dependence in both price volatility and storage increments. Model calibrations are conducted for both the price and storage dynamics. Further, we discuss the pricing problem of discrete-time swing options using the dynamic programming principle, and a deep learning-based method is proposed for numerical approximations. A numerical algorithm is provided, followed by a convergence analysis result for the deep-learning approach.

Date: 2024-06
New Economics Papers: this item is included in nep-big, nep-cmp, nep-ene, nep-inv and nep-rmg
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