<t>I think you should focus on energies which are traded on exchange like ICE or Nymex. Namely Brent, WTI, HH, and Gasoline. All the other energies are traded OTC which makes it nearly impossible to deploy any hf strategy. And I am not talking about liquidity problem which may also happen for some c...

<t>Rolling Intrinsic consists in hedging the optimal profile at t_0 and adjusting afterwards the hedging portfolio according to the new optimals.Thus your hedging portfolio at time t should only be reflecting your optimal profile at time t; otherwise it would mean that your profile at time t is not ...

PSOR or Howard certificate are similar.You are forgetting to include the volume discretisation into the state variables, that's where it gets tricky.

PDEs are difficult to handle whenever the scheme is not fully explicit.This is coming from the free frontier problema type (non linear equation to solve) and thus one has to implement a Howard type certificate.The difficulty arising is (always) the number of state variables...

<t>Mainly because nobody trades a storage as an option.People from utilities/oil majors usually trade storages with the rolling profile method. The price they are ready to pay for it is the intrinisic value + a small premium (sometimes 0).Lately, the price of storage capacities has explosed because ...

<t>I think people are focusing too much on the specification of the dynamics for the spot/forward curve.Forest of trees are nearly impossible to handle for multi dimensions (number of state variables ~ controls*timesteps*(random variables)^D)...PDEs are a nightmare as well (even with explicit method...

<t>Exactly the same as you would delta hedge a bermudean / american option. You write your payoff as a sup_q E[f(x,q)] where q are the controls (injection or withdrawal) subject to constraints and x are the spot prices (dependent on today's forward prices).So you have two kind of state variables, x ...

<t>There is no merit in their approach because it is not new at all.In the market, it is commonly known as Rolling Intrinsic Valuation and has been implemented in FEA for years now.The real problem is how to hedge the initial storage optional value. It is impossible in the case of a Rolling Intrinis...

sorry double post

QuoteOriginally posted by: diogenesQuoteOriginally posted by: LTrainStorage is just too fun.Especially if you try to delta hedge it...

If you don't consider any skew I would suggest Moment Matching for the Basket/Asian.If you consider smile, I suggest you read various papers regarding the reconstruction of the volatility surface for basket options. Incorporating the asian feature in your basket will be tricky though.

<t>QuoteOriginally posted by: jd1123But the other approaches suppose a distribution on the price of natural gas that is not at all hedgeable. This is why I don't trust spot models at all, regardless of how scientific, proprietary and mathematically sound your spot process may beunless you have a mod...

<t>If you compute the price of the storage via MTC simulations by applying Rolling intrinsic, you are not able to hedge this price. The only thing you are sure to hedge with RI is the initial profile.You can buy DA, BOM and futures contract on the market (at least in Europe) so you can hedge tomorro...

<t>I totally disagree with jd1123.Spread Option is the worst method to price a storage as it does not take into account the dynamicity of the problem. The only good idea is to be able to statically replicate your portfolio with american spread options that you can find on the market. Pb : the market...

I have found some benchmarks on this excellent website.For LP, CPLEX >> CoinOR > GLPK > LP_SOLVESame for MIP.