Merchant Commodity Storage and Term-Structure Model Error

Published Online:https://doi.org/10.1287/msom.2015.0518

References

  • Berling P, Rosling K (2005) The effects of financial risk on inventory policy. Management Sci. 51(12):1804–1815.LinkGoogle Scholar
  • Birge JR (2000) Option methods for incorporating risk into linear capacity planning models. Manufacturing Service Oper. Management 2(1):19–31.LinkGoogle Scholar
  • Bjerksund P, Stensland G, Vagstad F (2011) Gas storage valuation: Price modeling v. optimization methods. Energy J. 32(1):203–227.CrossrefGoogle Scholar
  • Blanco C, Soronow D, Stefiszyn P (2002) Multi-factor models for forward curve analysis: An introduction to principal component analysis. Commodities Now (June):76–78.Google Scholar
  • Boogert A, de Jong C (2008) Gas storage valuation using a Monte Carlo method. J. Derivatives 15(3):81–98.CrossrefGoogle Scholar
  • Boogert A, de Jong C (2011/2012) Gas storage valuation using a multifactor price process. J. Energy Markets 4(4):29–52.CrossrefGoogle Scholar
  • Borovkova S, Geman H (2006) Seasonal and stochastic effects in commodity forward curves. Rev. Derivatives Res. 9(2):167–186.CrossrefGoogle Scholar
  • Borovkova S, Geman H (2008) Forward curve modeling in commodity markets. Geman H, ed. Risk Management in Commodity Markets: From Shipping to Agriculturals and Energy (John Wiley & Sons, Chichester, UK), 9–32.Google Scholar
  • Boyabatlı O, Kleindorfer PR, Koontz SR (2011) Integrating long-term and short-term contracting in beef supply chains. Management Sci. 57(10):1771–1787.LinkGoogle Scholar
  • Brace A, Gatarek D, Musiela M (1997) The market model of interest rate dynamics. Math. Finance 7(2):127–155.CrossrefGoogle Scholar
  • Caldentey R, Haugh M (2006) Optimal control and hedging of operations in the presence of financial markets. Math. Oper. Res. 31(2):285–304.LinkGoogle Scholar
  • Carmona R, Ludkovski M (2010) Valuation of energy storage: An optimal switching approach. Quant. Finance 10(4):359–374.CrossrefGoogle Scholar
  • Casassus J, Collin-Dufresne P (2005) Stochastic convenience yields implied from interest rates and commodity futures. J. Finance 60(5):2283–2331.CrossrefGoogle Scholar
  • Chen Z, Forsyth PA (2007) A semi-Lagrangian approach for natural gas storage valuation and optimal operation. SIAM J. Sci. Comput. 30(1):339–368.CrossrefGoogle Scholar
  • Clewlow L, Strickland C (2000) Energy Derivatives: Pricing and Risk Management (Lacima Publications, London).Google Scholar
  • Cortazar G, Schwartz ES (1994) The valuation of commodity-contingent claims. J. Derivatives 1(4):27–39.CrossrefGoogle Scholar
  • Detemple J (2006) American-Style Derivatives: Valuation and Computation (Taylor & Francis, London).CrossrefGoogle Scholar
  • Devalkar SK, Anupindi R, Sinha A (2011) Integrated optimization of procurement, processing, and trade of commodities. Oper. Res. 59(6):1369–1381.LinkGoogle Scholar
  • Ding Q, Dong L, Kouvelis P (2007) On the integration of production and financial hedging decisions in global markets. Oper. Res. 55(3):470–489.LinkGoogle Scholar
  • Dixit AK, Pindyck RS (1994) Investment Under Uncertainty (Princeton University Press, Princeton, NJ).CrossrefGoogle Scholar
  • Driessen J, Klaassen P, Melenberg B (2003) The performance of multi-factor term structure models for pricing and hedging caps and swaptions. J. Financial Quant. Anal. 38(3):635–678.CrossrefGoogle Scholar
  • Eydeland A, Wolyniec K (2003) Energy and Power Risk Management: New Developments in Modeling, Pricing, and Hedging (John Wiley & Sons, Hoboken, NJ).Google Scholar
  • Fan R, Gupta A, Ritchken P (2001) On pricing and hedging in the swaption market: How many factors, really? Working paper, Case Western Reserve University, Cleveland.CrossrefGoogle Scholar
  • Frestad D (2008) Common and unique factors influencing daily swap returns in the Nordic electricity market, 1997–2005. Energy Econom. 30(3):1081–1097.CrossrefGoogle Scholar
  • Frestad D (2012) Liquidity and dirty hedging in the Nordic electricity market. Energy Econom. 34(5):1341–1355.CrossrefGoogle Scholar
  • Gaur V, Seshadri S (2005) Hedging inventory risk through market instruments. Manufacturing Service Oper. Management 7(2):103–120.LinkGoogle Scholar
  • Geman H (2005) Commodities and Commodity Derivatives: Modeling and Pricing for Agriculturals, Metals and Energy (John Wiley & Sons, Chichester, UK).Google Scholar
  • Geman H, Nguyen V-N (2005) Soybean inventory and forward curve dynamics. Management Sci. 51(7):1076–1091.LinkGoogle Scholar
  • Glasserman P (2004) Monte Carlo Methods in Financial Engineering (Springer, New York).CrossrefGoogle Scholar
  • Goel A, Gutierrez GJ (2011) Multiechelon procurement and distribution policies for traded commodities. Management Sci. 57(12):2228–2244.LinkGoogle Scholar
  • Graves S, Meal H, Dasu S, Qiu Y (1986) Two-stage production planning in a dynamic environment. Axsäter S, Schneeweiss C, Silver E, eds. Multi-Stage Production Planning and Inventory Control, Lecture Notes in Economics and Mathematical Systems, Vol. 266 (Springer-Verlag, Berlin), 9–43.CrossrefGoogle Scholar
  • Gray J, Khandelwal P (2004a) Realistic natural gas storage models II: Trading strategies. Commodities Now (September):1–5.Google Scholar
  • Gray J, Khandelwal P (2004b) Towards a realistic gas storage model. Commodities Now (June):1–4.Google Scholar
  • Heath D, Jackson PL (1994) Modeling the evolution of demand forecasts with application to safety stock analysis in production/distribution systems. IIE Trans. 26(3):17–30.CrossrefGoogle Scholar
  • Hull JC (2010) Risk Management and Financial Institutions, 2nd ed. (Prentice-Hall, Boston).Google Scholar
  • Jaillet P, Ronn EI, Tompaidis S (2004) Valuation of commodity-based swing options. Management Sci. 50(7):909–921.LinkGoogle Scholar
  • Kennedy DP (1994) The term structure of interest rates as a Gaussian random field. Math. Finance 4(3):247–258.CrossrefGoogle Scholar
  • Kouvelis P, Li R, Ding Q (2013) Managing storable commodity risks: The role of inventory and financial hedge. Manufacturing Service Oper. Management 15(3):507–521.LinkGoogle Scholar
  • Lai G, Margot F, Secomandi N (2010) An approximate dynamic programming approach to benchmark practice-based heuristics for natural gas storage valuation. Oper. Res. 58(3):564–582.LinkGoogle Scholar
  • Lai G, Wang MX, Kekre S, Scheller-Wolf A, Secomandi N (2011) Valuation of storage at a liquefied natural gas terminal. Oper. Res. 59(3):602–616.LinkGoogle Scholar
  • Leppard S (2005) Energy Risk Management: A Non-Technical Introduction to Energy Derivatives (Risk Books, London).Google Scholar
  • Longstaff FA, Santa-Clara P, Schwartz ES (2001) The relative valuation of caps and swaptions: Theory and empirical evidence. J. Finance 56(6):2067–2109.CrossrefGoogle Scholar
  • Luenberger DG (2014) Investment Science, 2nd ed. (Oxford University Press, New York).Google Scholar
  • Manoliu M, Tompaidis S (2002) Energy futures prices: Term structure models with Kalman filter estimation. Appl. Math. Finance 9(1):21–43.CrossrefGoogle Scholar
  • Maragos S (2002) Valuation of the operational flexibility of natural gas storage reservoirs. Ronn E, ed. Real Options and Energy Management Using Options Methodology to Enhance Capital Budgeting Decisions (Risk Publications, London), 431–456.Google Scholar
  • Pilipovic D (2007) Energy Risk: Valuing and Managing Energy Derivatives, 2nd ed. (McGraw-Hill, New York).Google Scholar
  • Plambeck EL, Taylor TA (2013) On the value of input efficiency, capacity efficiency, and the flexibility to rebalance them. Manufacturing Service Oper. Management 15(4):630–639.LinkGoogle Scholar
  • Ross SA (1997) Hedging long run commitments: Exercises in incomplete market pricing. Econom. Notes 26(2):385–420.Google Scholar
  • Schwartz ES (1997) The stochastic behavior of commodity prices: Implications for valuation and hedging. J. Finance 52(3):923–973.CrossrefGoogle Scholar
  • Schwartz ES, Smith JE (2000) Short-term variations and long-term dynamics in commodity prices. Management Sci. 46(7):893–911.LinkGoogle Scholar
  • Secomandi N (2010a) On the pricing of natural gas pipeline capacity. Manufacturing Service Oper. Management 12(3):393–408.LinkGoogle Scholar
  • Secomandi N (2010b) Optimal commodity trading with a capacitated storage asset. Management Sci. 56(3):449–467.LinkGoogle Scholar
  • Secomandi N, Kekre S (2014) Optimal energy procurement in spot and forward markets. Manufacturing Service Oper. Management 16(2):270–282.LinkGoogle Scholar
  • Secomandi N, Seppi DJ (2014) Real option and merchant operations of energy and other commodities. Foundations Trends Tech., Inform. Oper. Management 6(3–4):161–331.CrossrefGoogle Scholar
  • Secomandi N, Wang MX (2012) A computational approach to the real option management of network contracts for natural gas pipeline transport capacity. Manufacturing Service Oper. Management 14(3):441–454.LinkGoogle Scholar
  • Seppi DJ (2002) Risk-neutral stochastic processes for commodity derivative pricing: An introduction and survey. Ronn E, ed. Real Options and Energy Management Using Options Methodology to Enhance Capital Budgeting Decisions (Risk Publications, London), 3–60.Google Scholar
  • Smith JE, McCardle KF (1999) Options in the real world: Lessons learned in evaluating oil and gas investments. Oper. Res. 47(1):1–15.LinkGoogle Scholar
  • Suenaga H, Smith A, Williams J (2008) Volatility dynamics of NYMEX natural gas futures prices. J. Futures Markets 28(5):438–463.CrossrefGoogle Scholar
  • Thompson M (2012) Natural gas storage valuation, optimization, market and credit risk management. Working paper, Queen’s School of Business, Queen’s University, Kingston, ON, Canada.Google Scholar
  • Thompson M (2013) Optimal economic dispatch and risk management of thermal power plants in deregulated markets. Oper. Res. 61(4):791–809.LinkGoogle Scholar
  • Thompson M, Davison M, Rasmussen H (2009) Natural gas storage valuation and optimization: A real options application. Naval Res. Logist. 56(3):226–238.CrossrefGoogle Scholar
  • Tirole J (2006) The Theory of Corporate Finance (Princeton University Press, Princeton, NJ).Google Scholar
  • Tolmasky C, Hindanov D (2002) Principal components analysis for correlated curves and seasonal commodities: The case of the petroleum market. J. Futures Markets 22(11):1019–1035.CrossrefGoogle Scholar
  • U.S. Energy Information Administration (EIA) (2010) Annual energy review 2009. Report DOE/EIA-0384(2009), U.S. Department of Energy, Washington, DC.Google Scholar
  • U.S. Energy Information Administration (EIA) (2011a) Annual energy outlook 2011 with projections to 2035. Report DOE/EIA-0383(2011), U.S. Department of Energy, Washington, DC.Google Scholar
  • U.S. Energy Information Administration (EIA) (2011b) Natural gas consumption by end use. Accessed March 3, 2015, http://www.eia.gov/dnav/ng/ng_cons_sum_dcu_nus_a.htm.Google Scholar
  • U.S. Energy Information Administration (EIA) (2011c) Underground natural gas working storage capacity. Accessed March 3, 2015, http://www.eia.gov/naturalgas/storagecapacity/.Google Scholar
  • Van Mieghem JA (2003) Capacity management, investment and hedging: Review and recent developments. Manufacturing Service Oper. Management 5(4):269–302.LinkGoogle Scholar
  • Veronesi P (2010) Fixed Income Securities: Valuation, Risk, and Risk Management (John Wiley & Sons, Hoboken, NJ).Google Scholar
  • Wu OQ, Chen H (2010) Optimal control and equilibrium behavior of production-inventory systems. Management Sci. 56(8):1362–1379.LinkGoogle Scholar
  • Wu OQ, Wang DD, Qin Z (2012) Seasonal energy storage operations with limited flexibility: The price-adjusted rolling intrinsic policy. Manufacturing Service Oper. Management 14(3):455–471.LinkGoogle Scholar
INFORMS site uses cookies to store information on your computer. Some are essential to make our site work; Others help us improve the user experience. By using this site, you consent to the placement of these cookies. Please read our Privacy Statement to learn more.