UK Gas Markets: the Market Price of Risk and Applications to Multiple Interruptible Supply Contracts

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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Year of publication:	2006-09
Authors:	Cartea, Alvaro ; Williams, Thomas
Institutions:	Birkbeck, Department of Economics, Mathematics & Statistics
Subject:	Interruptible supply contracts \| gas markets \| commodities \| market price of short-term and long-term risk \| multi-exercise Bermudan options \| convenience yield

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Extent:	application/pdf
Series:	Birkbeck Working Papers in Economics and Finance.
Type of publication:	Book / Working Paper
Language:	English
Notes:	Number 0608
Classification:	G12 - Asset Pricing ; C61 - Optimization Techniques; Programming Models; Dynamic Analysis
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005509610