Journal of Energy Markets

Managing temperature-driven volume risks

Laura Cucu, Rainer Döttling, Pascal Heider and Samuel Maina


Natural gas demand in Western Europe depends strongly on temperature. The analysis of historical gas spot prices and temperatures shows a dependency between day-ahead prices and temperature, especially in time periods of low temperatures. Typically, natural gas consumption peaks during the cold winter months.We propose a stochastic model for coupled natural gas spot prices and temperature. The dynamics of price and temperature are modeled by two factor processes, calibrated to implied data and historical realizations. As an application of the model, we present the evaluation of an energy quanto swap.