Publication: UK gas markets : the market price of risk and applications to multiple interruptible supply contracts
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2008-05
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Elsevier
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Abstract
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 gasmarkets. We discuss in detail the short-termand long-termmarket 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
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Interruptible supply contracts, Gas markets, Commodities, Market price of short-term and long-term risk, Multi-exercise Bermudan options, Convenience yield
Bibliographic citation
Energy Economics, 2008, v. 30, n. 3, pp. 829-846