Cutting edge: Valuation and optimal hedging of storage contracts in incomplete gas markets

Magnus Wobben, Tilman Huhne, Yuri Ivanov and Sebastian Hanneken
18 Nov 2013

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Cyclical gas consumption, as well as limited and lagged adjustments of gas supply (for example, caused by increased production), lead to drastic price movements with uncertain volumes. As a suitable means to hedge against those uncertainties, virtual and physical gas storage contracts are becoming more and more important (see Eydeland & Wolyniec (2013) for market fundamentals, as well as standard pricing and hedging approaches).

However, a market-coherent valuation and replication of these

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