A Semi-Lagrangian Approach for Natural Gas Storage Valuation and Optimal Operation

Authors:
Zhuliang Chen;Peter A. Forsyth
Affiliations:
-;-
Venue:
SIAM Journal on Scientific Computing
Year:
2007

Citing 0
Cited 6

An Approximate Dynamic Programming Approach to Benchmark Practice-Based Heuristics for Natural Gas Storage Valuation

Operations Research
A Hamilton-Jacobi-Bellman approach to optimal trade execution

Applied Numerical Mathematics
Valuation of Storage at a Liquefied Natural Gas Terminal

Operations Research
Seasonal Energy Storage Operations with Limited Flexibility: The Price-Adjusted Rolling Intrinsic Policy

Manufacturing & Service Operations Management
Penalty Methods for the Solution of Discrete HJB Equations—Continuous Control and Obstacle Problems

SIAM Journal on Numerical Analysis
A simulation-and-regression approach for stochastic dynamic programs with endogenous state variables

Computers and Operations Research

Quantified Score

Hi-index	0.00

Visualization

Abstract

The valuation of a gas storage facility is characterized as a stochastic control problem, resulting in a Hamilton-Jacobi-Bellman (HJB) equation. In this paper, we present a semi-Lagrangian method for solving the HJB equation for a typical gas storage valuation problem. The method is able to handle a wide class of spot price models that exhibit mean-reverting seasonality dynamics and price jumps. We develop fully implicit and Crank-Nicolson timestepping schemes based on a semi-Lagrangian approach and prove the convergence of fully implicit timestepping to the viscosity solution of a modified HJB equation posed on a bounded domain, provided that a strong comparison result holds. The semi-Lagrangian approach avoids Policy-type iterations required by an implicit finite difference method without requiring additional cost. Numerical experiments are presented for several variants of the basic scheme.