The Convenience Yield Implied in the European Natural Gas Markets

Margarethe Rammerstorfer, Thomas Kremser

Publication: Scientific journalJournal articlepeer-review

Abstract

This paper determines the convenience yield implied in the European natural gas markets and investigates driving factors and according dynamics. For this, we approximate the convenience yield via an option-based approach, in which the convenience yield is determined as the difference between two average floating-strike Asian options written on the spot and futures contracts. In a second step, we fit an exponential generalized autoregressive conditional heteroscedasticity (EGARCH) model to explain the convenience yield via storage and weather as well as other key driving factors. The empirical analysis reveals distinct results for the impact of storage, which indicates that the release of natural gas storage levels generates considerable volatility. Further, we illustrate that the mixed evidence and the absence of a clear pattern to explain the convenience yield's characteristics underline the transitory state of European natural gas markets.
Original languageEnglish
Pages (from-to)27 - 58
JournalJournal of Energy Markets
Volume9
Issue number3
DOIs
Publication statusPublished - 2016

Austrian Classification of Fields of Science and Technology (ÖFOS)

  • 502

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