Developing a market-based approach to managing the US strategic petroleum reserve.

The Strategic Petroleum Reserve has not been used effectively to manage the consequences of oil shocks in the United States. The main reason is that political decision makers tend to hoard the reserves during crises and bureaucratic processes delay the sale of the reserves. Also, the enabling legislation focused on ameliorating shortages whereas disruptions result in price spikes rather than shortages. We develop a Markov game of the buildup and drawdown of the reserve in which a public player aims to maximize consumer welfare at the same time private holders of inventory maximize their profit. The methodological contribution in this paper is the development of financial options to implement the public player's optimal policy. We use the solution of this game to calculate the number and value of options necessary for the private marketplace to trigger the optimal buildup and drawdown of the reserve

Reinforcement learning for business modeling.

This chapter summarizes the reinforcement learning theory, emphasizing its relationship with dynamic programming (reinforcement learning algorithms may replace dynamic programming when a full model of the environment is not available) and analysing its limitations as a tool for modelling human and organizational behaviour

Pricing option contracts on the strategic petroleum reserve.

In this article we examine the pricing of option contracts on the strategic petroleum reserve (SPR) and consider how these can be used by both the government and refiners. We analyze the interaction between the call and put option contracts, taking into account the underlying game, in the infinite Markov decision process with discounting, explaining the relationship between the valuation of options on the SPR by refiners and the valuation of financial options on a marker crude in financial markets. We conclude that the values of both call and put options on the SPR increase with oil prices and decrease with total inventory. Furthermore, our analysis shows that a more active management of the SPR creates higher social welfare (although refiners profit less from inventories) and larger volatility in inventory profits, decreasing private investment in petroleum stocks