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Volatility dynamics of NYMEX natural gas futures prices

✍ Scribed by Hiroaki Suenaga; Aaron Smith; Jeffrey Williams

Publisher: John Wiley and Sons
Year: 2008
Tongue: English
Weight: 440 KB
Volume: 28
Category: Article
ISSN: 0270-7314
DOI: 10.1002/fut.20317

No coin nor oath required. For personal study only.

✦ Synopsis

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. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:438–463, 2008

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