UK gas markets: the market price of risk and applications to multiple interruptible supply contracts
Cartea, Alvaro and Williams, T. (2008) UK gas markets: the market price of risk and applications to multiple interruptible supply contracts. Energy Economics 30 (3), pp. 829-846. ISSN 0140-9883.
We employ the Schwartz and Smith [Schwartz, E., and J. Smith, 2000, Short-term variations and long-term dynamics in commodity prices, Management Science 46, 893–911.] 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.
|Keyword(s) / Subject(s):||Interruptible supply contracts, gas markets, commodities, market price of short-term and long-term risk, multi-exercise Bermudan options, convenience yield|
|School:||Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics|
|Date Deposited:||01 Feb 2011 11:09|
|Last Modified:||17 Apr 2013 12:18|
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