Optimal operating strategy for a storage facility

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.

Department dc:contributor.department

Massachusetts Institute of Technology. Computation for Design and Optimization Program.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2008

Author dc:creator

• Zhai, Ning

Advisor dc:contributor.advisor

• John E. Parsons.

• Computation for Design and Optimization Program.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/45285

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/45285