The Convenience Yield Implied in the European Natural Gas Markets – The Impact of Storage and Weather

Posted: 15 Sep 2012 Last revised: 23 Sep 2014

See all articles by Thomas Reinhard Kremser

Thomas Reinhard Kremser

Vienna University of Economics and Business - Institute for Finance, Banking and Insurance

Margarethe Rammerstorfer

Vienna University of Economics and Business - Department of Corporate Finance

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Date Written: September 14, 2012

Abstract

This paper determines the convenience yield implied in the European natural gas markets and investigates driving factors and according dynamics. For this, we approximate the convenience yield via an option-based approach, in which the convenience yield is determined as the difference between two average floating-strike Asian options, written on the spot and the other on futures contract, respectively. In a second step, we fit an exponential GARCH model to explain the convenience yield via storage and weather, as well as other key driving factors. The empirical analysis reveals distinct results for the impact of storage, which indicates that the release of natural gas storage levels generates considerably volatility. Furthermore, we illustrate that the mixed evidence and the absence of a clear pattern to explain the convenience yield's characteristics underline the transitory state of the European natural gas market.

Keywords: Natural Gas, Futures, Convenience Yield, Price Volatility, GARCH.

JEL Classification: G13, G14, O13, Q40.

Suggested Citation

Kremser, Thomas Reinhard and Rammerstorfer, Margarethe, The Convenience Yield Implied in the European Natural Gas Markets – The Impact of Storage and Weather (September 14, 2012). Available at SSRN: https://ssrn.com/abstract=2146639 or http://dx.doi.org/10.2139/ssrn.2146639

Thomas Reinhard Kremser (Contact Author)

Vienna University of Economics and Business - Institute for Finance, Banking and Insurance ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Margarethe Rammerstorfer

Vienna University of Economics and Business - Department of Corporate Finance ( email )

Welthandelsplatz 1
1020 Vienna
Austria

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