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Published in:
2016 | OriginalPaper | Chapter
Selected Case Studies
Author : Daniel Mahoney
Published in: Modeling and Valuation of Energy Structures
Publisher: Palgrave Macmillan UK
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We have already described the basics of storage deals in Section 1.2.3, and introduced spot-based control problem formulations in Section 3.3.2. (Recall that we also considered storage in Section 3.1.4 in contrasting dynamic hedging strategies [delta-hedging vs. rolling intrinsic].) In fact, in the discussion of control-based approaches, we pointed out that essentially forward-based valuations in terms of baskets-of-spread options provide lower bounds to this generally intractable optimization problem. This connection was not accidental; in Section 3. 1.1 we stressed the basic unity of the two valuation paradigms (spot vs. forward). We will now provide a concrete example in support of these claims.