Modeling natural gas price volatility: The case of the UK gas market

Harm van Goor, Bert Scholtens*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

27 Citations (Scopus)

Abstract

We investigate if and how gas price volatility can be explained on the basis of market fundamentals. We depart from the Kanamura (2009) supply and demand based volatility model. We generalize this model to account for a variety of demand and supply relationships. We investigate daily natural gas prices in the UK in the 21st century. We find that different supply curves exist in particular sub periods and we establish the presence of various leverage effects. We conclude that supply and demand based volatility models relying on different supply assumptions provide a sound theoretical and economic foundation for using GARCH models in the UK gas market.

Original languageEnglish
Pages (from-to)126-134
Number of pages9
JournalEnergy
Volume72
DOIs
Publication statusPublished - 1 Aug 2014

Keywords

  • Energy finance
  • GARCH
  • Natural gas markets
  • Supply and demand
  • UK
  • Volatility

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