This example demonstrates using MATLAB to optimize a natural gas storage facility and perform intrinsic storage contract valuation. Such valuations are typically done when financing/purchasing storage facilities, structuring contracts to lease storage facilities or marking to market the value of these assets. Intrinsic valuation is the simplest method of valuation of such a facility. It involves optimizing long (injection) and short (withdrawal) positions in a forward curve on the valuation date to maximize storage revenue. This value is locked in for the duration of the contract. Therefore it is the least risky approach but does not take advantage of opportunities resulting from fluctuation of market prices over time.
The problem is posed and solved as a linear programming problem with constraints. These constraints include injection limits, withdrawal limits and initial, terminal, minimum and maximum volume constraints.
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Inspired: Natural Gas Storage Valuation