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    Volatility dynamics of nymex natural gas futures prices

    116599_4214_Suenaga_ACE2006.pdf (309.5Kb)
    Access Status
    Open access
    Authors
    Suenaga, Hiroaki
    Smith, A.
    Williams, J.
    Date
    2006
    Type
    Conference Paper
    
    Metadata
    Show full item record
    Citation
    Suenaga, Hiroaki and Smith, Aaron and Williams, Jeffrey. 2006. Volatility dynamics of nymex natural gas futures prices, in Bloch, H. (ed), 35th Australian Conference of Economists (ACE), Sep 25 2006, Perth, WA: Curtin University of Technology.
    Source Title
    35th Australian Conference of Economists
    Source Conference
    Australian Conference of Economists (ACE)
    ISBN
    1740675010
    Faculty
    Curtin Business School
    School of Economics and Finance
    URI
    http://hdl.handle.net/20.500.11937/14008
    Collection
    • Curtin Research Publications
    Abstract

    Despite their importance in pricing futures and other derivative contracts, seasonalvariations in mean and variance of energy prices have not been fully captured inprevious studies of energy prices. We examine the volatility dynamics of daily naturalgas futures traded on the NYMEX via the partially overlapping time-series (POTS) modelof Smith (2005, Journal of Applied Econometrics). We illustrate that the volatility of dailyprice changes of natural gas exhibits strong seasonality, even as the volatility increases asa contract approaches its expiration, a time-to-maturity effect. Our analysis reveals thatthe persistence of price shocks and, hence, the correlations among concurrently tradedcontracts, also exhibit substantial seasonal and cross-sectional variation. These volatilitypatterns we estimate are closely related to the seasonal cycle of US natural gas storage ina way consistent with the theory of storage. We demonstrate that, by ignoring theseasonality in the volatility dynamics of natural gas futures prices, previous studies havesuggested sub-optimal hedging strategies.

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