Publication: UK gas markets : the market price of risk and applications to multiple interruptible supply contracts
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2007-03-05
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Abstract
We employ the Schwartz and Smith (2000) 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
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Keywords
Interruptible supply contracts, Gas markets, Commodities, Market price of short-term and long-term risk, Multi-exercise Bermudan options, Convenience yield