Replacing an old household furnace with a new one: An evaluation

A Hull-White one factor model based analysis has been presented to evaluate the savings of replacing an old residential furnace with a new high efficiency residential furnace. Savings is calculated by a dynamic programming approach based on a trinomial tree representing the spot prices of natural gas, the most widely used fuel for residential furnaces. The analysis may help both policy makers in government agencies and homeowners in saving energy costs and reducing carbon emissions.