Gas Storage Valuation Under Multi-Factor Levy Processes

This paper builds upon the work of Kiely et al. [2015] to provide a storage valuation methodology which is capable of utilizing both market and historical information. We begin by extending the Mean Reverting Variance Gamma process to an arbitrary number of dimensions and by way of specific examples show how the traditional Principal Component Analysis based view of gas forward curve dynamics can be incorporated into a primarily market based valuation. We discuss the calibration of such models to the monthly delivery swaption market through a modi cation of the market implied moments technique of Guillaume and Schoutens [2013]. We go on to present details of the Fourier Transform based valuation methodology in a multidimensional setting and fi nally present empirical valuation results for a stylized storage deal under di fferent specif cations of a two factor model of the forward curve