A Robust Model of the Convenience Yield in the Natural Gas Market

Professorship/Faculty: Lehrstuhl für Betriebswirtschaftslehre, insbesondere Banking und Finanzcontrolling 
Author(s): Volmer, Thomas
Title of the Journal: The journal of Futures Markets
ISSN: 1096-9934
Publisher Information: Hoboken, NJ : Wiley-Blackwell
Year of publication: 2011
Volume: 31
Issue: 11
Pages / Size: S. 1011 - 1051 : graph. Darst.
Year of first publication: 2011
Language(s): English
Licence: German Act on Copyright 
DOI: 10.1002/fut.20504
Document Type: Article
This study advances the research on the convenience yield of natural gas. Econometric models confirm that air temperature is an important explanatory variable in addition to storage levels. Furthermore, an extended linear model shows that one has to account for a changing cost of physical storage in the spirit of Brennan (1958). Besides this, an alternative regime-switching model for the convenience yield helps to put in perspective a prominent finding by Fama, and French (1987). That is, given binding capacity constraints for gas storage, the variance of the futures' basis will increase rather than decrease with the storage levels. Finally and most importantly, robustness tests demonstrate that the extended linear model produces the most viable forecasts and that these forecasts can help to amend the performance of reduced-form models for the gas spot price.
URI: https://fis.uni-bamberg.de/handle/uniba/467
Release Date: 21. September 2012