Optimal spot trading strategy and show that the computational efficiency of this method exceeds existing approaches in about two orders of magnitude. We develop a Gaussian quadrature scheme to solve for the dynamically The operational process is modeled as a multi-stage stochastic optimization problem. In the third part of this thesis, we propose a market-based valuation framework for valuing natural gas storage facility with realistic operational characteristics. Methods enable the accurate pricing of a bulk volume of spread options on two or more assets in real time, it offers traders a potential edge in a dynamic market environment. Closed-form approximations for important Greeks are also derived. Numerical analysis shows thatīoth methods are extremely fast and accurate, with the latter method more accurate than the former. We provide two new closed-form approximation methods for pricing spread options on a basket of risky assets: the extended Kirk approximation and the second-order boundary approximation. We then further generalize the above results to multi-asset spread options on an arbitrary number of assets. In addition, we analyze the price sensitivities of spread options and provide lower and upper bounds for digital spread options. Closed-form approximations for the Greeks of spread options are also developed. Our method is also extremely fast, with computing time more than two orders of magnitude shorter than one-dimensional numerical integration. Numerical analysis shows that our method is more accurate than existing analytical approximations. We develop a newĬlosed-form approximation method for pricing two-asset spread options. The contributions are illustrated through two important applications of real options in energy markets: natural gas storage and power plant valuation.īecause spread options are commonly used in basic real options valuation techniques, the first part of the thesis addresses the problems of spread option pricing and hedging. This thesis investigates three different approaches to real options valuation and contributes to aspects of modeling realism and computational efficiency. However, as real options valuation often involves complex payoff structures and operational constraints of the underlying real assets or projects, accurate and flexible methods for solving the valuation problem are essential. Because of their close analogy to financial options, real options can be valued using the classical financial option pricing theories and their extensions. Real options have been widely applied to analyze investment planning and asset valuation under uncertainty in many industries, especially energy markets.
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