Optimal operating strategy for a storage facility
Massachusetts Institute of Technology. Computation for Design and Optimization Program.
John E. Parsons.
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In the thesis, I derive the optimal operating strategy to maximize the value of a storage facility by exploiting the properties in the underlying natural gas spot price. To achieve the objective, I investigate the optimal operating strategy under three different spot price processes: the one-factor mean reversion price process with and without seasonal factors, the one-factor geometric Brownian motion price process with and without seasonal factors, and the two-factor short-term/long-term price process with and without seasonal factors. I prove the existence of the unique optimal trigger prices, and calculate the trigger prices under certain conditions. I also show the optimal trigger prices are the prices where the marginal revenue is equal to the marginal cost. Thus, the marginal analysis argument can be used to determine the optimal operating strategy. Once the optimal operating strategy is determined, I use it to obtain the optimal value of the storage facility in three ways: 1, using directly the net present value method; 2, solving the partial differential equations governing the value of the storage facility; 3, using the Monte Carlo method to simulate the decision making process. Issues about parameter estimations are also considered in the thesis.
Thesis (S.M.)--Massachusetts Institute of Technology, Computation for Design and Optimization Program, 2008.Includes bibliographical references (p. 100-101).
DepartmentMassachusetts Institute of Technology. Computation for Design and Optimization Program.
Massachusetts Institute of Technology
Computation for Design and Optimization Program.