Volatility dynamics of NYMEX natural gas futures prices

Abstract

We examine the volatility dynamics of NYMEX natural gas futures prices via the partially overlapping time-series model of Smith (2005. Journal of Applied Econometrics, 20, 405-422). We show that volatility exhibits two important features: (1) volatility is greater in the winter than in the summer, and (2) the persistence of price shocks and, hence, the correlations among concurrently traded contracts, displays substantial seasonal and cross-sectional variation in a way consistent with the theory of storage. We demonstrate that, by ignoring the seasonality in the volatility dynamics of natural gas futures prices, previous studies have suggested sub-optimal hedging strategies.

Information transmission and market interactions across the Atlantic — an empirical study on the natural gas market

“…A positive shock will increase volatility by 2.016 times (based on the estimated in Sequence 1) more than a negative shock of an equal magnitude. 24 This finding is analogous with Suenaga et al (2008) that describes the volatility dynamics on NYMEX natural gas 24 The degree of asymmetry (positive shock to negative shock) is measure by the futures prices. Suenaga et al (2008) find substantial variation in a way consistent with the theory of storage.…”

“…24 This finding is analogous with Suenaga et al (2008) that describes the volatility dynamics on NYMEX natural gas 24 The degree of asymmetry (positive shock to negative shock) is measure by the futures prices. Suenaga et al (2008) find substantial variation in a way consistent with the theory of storage. The estimate on θ 2 is not significant suggesting the volatility in the U.K. futures market exhibits symmetrically between good news and bad news.…”

European natural gas seasonal effects on futures hedging

“…The futures British gas market is operated by InterContinental Exchange (ICE) Europe. The ICE natural gas futures contract for NBP was launched in January 1997 and has become the 1 See Mu (2007), Suenaga et al (2008), Alterman (2012), Henaff et al (2013) and Efimova and Serletis (2014). 2 Liberalization of the natural gas market began in the UK with the 1995 Gas Act.…”

The affine styled-facts price dynamics for the natural gas: evidence from daily returns and option prices

“…(Brooks and Prokopczuk 2013;Mohanty et al 2013;Diewald et al 2015;Cartwright and Riabko 2015) These above styled-facts of price dynamics complicate the market participants' perspective on natural gas' pricing and hedging. In addition, Deng (1999), Casassus and Collin-Dufresne (2005), Suenaga et al (2008), Volmer (2011), Back et al (2013), and Arismendi et al (2016) document evidence of heteroscedasticity in commodity price returns.…”