In this paper, we evaluate a swing option contract embedded in a real world gas sales agreement. Under special conditions, contracts of this kind can be seen as a strip of American spread options, where the spread is the difference between a calculated contract price and the market price for the reference commodity. The reference commodity is the natural gas traded on the NetConnect Germany. The contract price has four underlying assets, which leads to a multifactor valuation problem for the pricing. Correlated mean-reverting models are chosen for all of the underlying assets. The Monte Carlo approach is used to estimate the fair value of the swing option with one year maturity. The model gives an accurate short-term forecast of the actual company values.
Pricing a Swing Contract in a Gas Sale Company
VIVIANA FANELLI;
2018-01-01
Abstract
In this paper, we evaluate a swing option contract embedded in a real world gas sales agreement. Under special conditions, contracts of this kind can be seen as a strip of American spread options, where the spread is the difference between a calculated contract price and the market price for the reference commodity. The reference commodity is the natural gas traded on the NetConnect Germany. The contract price has four underlying assets, which leads to a multifactor valuation problem for the pricing. Correlated mean-reverting models are chosen for all of the underlying assets. The Monte Carlo approach is used to estimate the fair value of the swing option with one year maturity. The model gives an accurate short-term forecast of the actual company values.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
