In this paper we demonstrate the application of multi-factor Least-Squares Monte Carlo to gas storage valuation. We study the impact of using multi-factor price processes on different aspects of the valuation such as convergence, average storage value and distribution of storage values in a numerical example.
Practical Derivatives: KYOS consultants write chapter about Energy Derivatives
This new second edition shows how derivatives are used in a variety of transactions, how the documentation works and why boards need to be aware of them. KYOS director Cyriel de Jong wrote the chapter on Energy Derivatives.
World Power: The value of starting up a power plant
In this article we demonstrate the impact of various start-stop constraints and costs for the value of a power station. This impact analysis is possible by applying advanced techniques for generating realistic Monte Carlo price simulations in combination with techniques for optimizing the production pattern.
Journal of Energy Markets: Cointegration between gas and power spot prices
In this paper we show how cointegration can be applied to capture the joint dynamic of multiple energy spot prices. Our analysis shows that gas prices are strongly cointegrated, whereas cointegration of gas and power prices is at long-term forward price levels only.
Journal of Derivatives: Gas storage valuation using a Monte Carlo method
In this article, we develop a method for gas storage valuation using Monte Carlo (LSMC) techniques. The method incorporates realistic gas price dynamics and complex physical constraints. Specifically, we extend the Least Squares Monte Carlo method for American options to storage valuation.
World Power: Realistic power plant valuations with cointegration
Traditional net present value (NPV) analysis disregards the flexibility to adjust production decisions to market developments, and thus underestimate true plant value. On the other hand, methods treating power plants as a series of spread options ignore technical and contractual restrictions, and thus overestimate true plant value. In this article we demonstrate the use of cointegration to incorporate market fundamentals and calculate dynamic, yet reasonable, spread levels and power plant values.
World Power: uncertainties in wind production often priced at too low levels
This article describes the pricing and hedging of wind power contracts. It demonstrates that substantial discounts relative to baseload power prices are reasonable to cover the negative wind-price correlation and to cover the difficulty of hedging price risks.
Commodities Now: Negative prices in electricity markets
Commodities Now Publication about negative power prices by Cyriel de Jong (2003). Negative prices in electricity markets logo In this paper we describe how liberalisation has lead to the segmentation of trading opportunities for electricity with different periods to delivery. We clarify the price characteristics in each segment, including the extreme volatility in short-term prices and the phenomenon… Read more »
Energy Power Risk Management Journal: to Store or not to Store?
This article by Cyriel de Jong and Kasper Walet describes the optimal operation and valuation of natural gas storage based on a real option methodology.
Energy Power Risk Management: Gas hubs jockey for position
According to a survey of European natural gas experts, the Bunde-Oude gas hub is the most likely candidate to become the Henry Hub of Europe.