Swing Contract Valuation

KySwing software quickly calculates values and delta positions for Take-or-Pay contracts. Take-or-Pay options are typical components of gas contracts. They offer the opportunity to vary the contracted volume at a fixed or indexed price, albeit under a number of restrictions. They are also known as swing, interruptible and variable load contracts. With swing contract valuation software, you can calculate:

• The optimal exercise of swing contracts
• Delta positions of swing contracts
• The best trading decision for a swing contract

Outputs swing contract valuation

KySwing calculates the value of swing contracts:

• Distribution of cash flows
• Distribution of contract values
• Distribution of off-take levels

The model supports day-to-day trading decisions. It advises on optimal exercise strategies, analyses the risk profile and adds value through asset based forward trading.

Least Squares Monte Carlo for a swing contract

The swing valuation software  is based on advanced simulation techniques. Important characteristics are a mean-reverting multi-factor model with long-term, short-term and seasonal dynamics. Optimal trading decisions are calculated by applying Least Squares Monte Carlo techniques. Volatility term structure and other simulation inputs are easily derived from historical data with the accompanying calibration tool. By applying cointegration, realistic spreads between oil and gas prices are generated.

► click here to read more about least squares monte carlo

► click here to read more about cointegration techniques

Elements of a swing contract

KySwing incorporates typical elements of Take-or-Pay (ToP) contracts, like periodic volume constraints (e.g. annual contract quantity, daily contract quantity), exercise based on fixed or indexed price (with specific time lags and multiple currencies) and penalties.

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