Forums  > Pricing & Modelling  > Short Term optimization of variable ‘real option’  
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Total Posts: 2
Joined: Apr 2020
Posted: 2020-04-20 16:49

Hey All,

Forst Post on this Page!

I wondered if anyone had any insight into approaches to find the optimisation of some real options (gas storages) assuming the option it’s self has 0 liquidity (I.e. we can’t and do not wish to sell the option itself).

The option / storage has:
- A fixed end date
- a min and maximum injection and withdrawal rate
-a min and max cumulative fill level at end date

The above leads to a to having some ‘flexibility’ in the fact that there now exists a range of decision paths on each day of wether to exercise or not that satisfy all the above.

I am aware of models that use methods such as LS Monte Carlo to try optimise the forward hedge of the
asset (using forwardvcurve), but these models are far more focused on the Long term optimization. These models sometimes involve some assumptions that may not hold in the prompt.

I wondered if anyone had any ideas on the SHORT term optimization of what %of the optional off take to exercise each day for just the next few days.Classical approaches would be nice but would also love to hear if anyone has tried a more date science approach.

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