Download This PaperHow to Value a Gas Storage Facility
41 Pages Posted: 13 Jan 2014
Date Written: January 11, 2014
Abstract
We show how to value a storage facility using Least Squares Monte Carlo (LSMC). We present a toy model to understand how to employ the LSMC algorithm and then show how to incorporate realistic constraints in the valuation including: the maximum capacity of the storage, injection and withdrawal rates and costs, and market constraints such as bid-ask spread in the spot market and transaction costs.
Keywords: Gas storage, Swing Options, LSMC
Suggested Citation: Suggested Citation
Cartea, Álvaro and Cheeseman, James and Jaimungal, Sebastian, How to Value a Gas Storage Facility (January 11, 2014). Available at SSRN: https://ssrn.com/abstract=2377781 or http://dx.doi.org/10.2139/ssrn.2377781
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