Developed countries are increasingly relying on gas storage to ensure security of supply. In this article we consider an approach to gas storage valuation in which the information about the time at which the holder of a gas storage contract should choose to inject or withdraw gas is modelled using a Brownian bridge that starts at zero and is conditioned to equal a constant x in the time of injection and a constant y in the time of withdrawal.
<meaning-changed> Developed countries are increasingly relying on gas storage to ensure security of supply. In this article we consider an approach to gas storage valuation in which the information about the time at which the holder of a gas storage contract should choose to inject or withdraw gas is modelled using a Brownian bridge that starts at zero and is conditioned to equal a constant x in the time of injection and a constant y in the time of withdrawal.
In this paper, we define and study the Brownian bridge with random length and pinning point. One of the main results of this work is that, unlike the deterministic case, the bridge fails to be Markovian for pinning points, the law of which is absolutely continuous with respect to the Lebesgue measure. As an application, we propose a new approach to gas storage valuation in which the information about the time at which the holder of a gas storage contract should choose to inject or withdraw gas is modelled using a Brownian bridge that starts at zero and is conditioned to equal a constant x in the time of injection and a constant y in the time of withdrawal.