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Subject: re : working gas price model | |
vince - | |
i have a simplified version of brad ' s model in mind . | |
the " no arbitrage " condition equates trading margins across the country . | |
costs of transmission rise with congestion on the network . wellhead supply is | |
almost completely price - elastic , while burner - tip demand is almost | |
completely price inelastic . storage is rationalized as a perpetual call | |
option . | |
the least time - variant parameters are the costs of injecting and withdrawing | |
gas from storage to the pipeline , followed by the costs of delivering gas | |
from the wellhead to the pipeline . the intermediate - variant parameters are | |
the capacity - dependent costs paid to the pipeline ( above shrinkage ) for | |
transmission . the most time - variant parameters are the trading margins and | |
the valuations of the storage option . | |
there are 8 parameters to be estimated at each major node of the betwork . | |
they are identifiable in either of two straightforward ways : using a short | |
time series of the last 3 days prices based on the assumed variability | |
mentioned above , or point - estimates ( " calibrations " ) using only today ' s data | |
based on a node - based model of competition between pipelines where pipes with | |
the same region of origination , albeit markedly different terminus , price | |
versus capacity similarly , " competing " for outflows . | |
i will write this up for you in scientific word and present it to you at your | |
earliest convenience . | |
clayton |