How to Value a Gas Storage Facility

41 Pages Posted: 13 Jan 2014

See all articles by Álvaro Cartea

Álvaro Cartea

University of Oxford; University of Oxford - Oxford-Man Institute of Quantitative Finance

James Cheeseman

British Petroleum

Sebastian Jaimungal

University of Toronto - Department of Statistics

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

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

Álvaro Cartea (Contact Author)

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

University of Oxford - Oxford-Man Institute of Quantitative Finance ( email )

Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom

James Cheeseman

British Petroleum ( email )

London SW1Y 4PD
United Kingdom

Sebastian Jaimungal

University of Toronto - Department of Statistics ( email )

100 St. George St.
Toronto, Ontario M5S 3G3
Canada

HOME PAGE: http://http:/sebastian.statistics.utoronto.ca

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