Storage Option An Analytic Approach
The mathematical problem of the static storage optimisation is formulated and solved by means of a variational analysis. The solution obtained in implicit form is shedding light on the most important features of the optimal exercise strategy. The authors show how the solution depends on different constraint types including carry cost and cycling constraint. They investigate the relation between intrinsic and stochastic solutions. In particular they give another proof that the stochastic problem has a "Bang-bang" optimal exercise strategy. They also show why the optimal stochastic exercise decision is always close to the intrinsic one.