Cutting edge: valuing and dynamically hedging natural gas storage
Hedging the extrinsic value of a natural gas storage
We consider the problem of monetising the extrinsic value of a natural gas storage. The storage is viewed as a basket of calendar spread options and is hedged dynamically using the delta-hedging approach. By way of a real example, we go through the details of the daily corrections in the hedging. The methodology is tested over a six-month period using the Henry Hub daily forward curves and the implied volatilities. Among others, we test the effects of the models errors, parameter estimations and
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