Abstract
The purpose of this paper is the comparative analysis of four natural gas storage valuation approaches. In competitive natural gas markets the optimal valuation and operation of natural gas storages is a key task for natural gas companies operating storages. Within this paper, four spot based valuation approaches are analyzed regarding computational time and accuracy. In particular, explicit and implicit finite differences, multinomial recombining trees, and Least Squares Monte Carlo Simulation are compared. These approaches are applied to the valuation of a gas storage facility considering three different underlying price processes. Major characteristics of historical natural gas prices are: seasonality, mean reversion and jumps. Therefore, we consider a mean reversion process as underlying price process. In a first step, we extend this mean reversion process to a mean reversion jump diffusion process, to account for jumps, occurring in historical gas spot price time series. Moreover, we consider a more general price process accounting for mean reversion as well as seasonal patterns as observed in the historical time series. Besides the analysis of the numerical results, the benefits and drawbacks of the methodologies are discussed.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
