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Uk Gas Markets: the Market Price of Risk and Applications to Multiple Interruptible Supply Contracts
Álvaro Cartea Universidad Carlos III de Madrid - Department of Business Administration August 2006 Birbeck Working Paper No. 0608 Abstract: We employ the Schwartz and Smith (2000) model to explore the dynamics of the UK gas markets. We discuss in detail the short-term and long-term market prices of risk borne by the market players and how deviations from expected cyclical storage affect the short-term market price of risk. Finally, we illustrate an application of the model by pricing interruptible supply contracts that are currently traded in the UK.
Keywords: Interruptible supply contracts, gas markets, commodities, market price ofshort-term and long-term risk, multi-exercise Bermudan options, convenience yield JEL Classifications: G12, G13 Working Paper SeriesDate posted: October 04, 2006 ; Last revised: March 05, 2007Suggested CitationContact Information
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