Introduction to Risk Management, Financial Structuring & Econometrics in the Energy Markets
28-30 May 2008, Rome, Italy

 

1. ENERGY MARKETS AND FINANCIAL CONTRACTS

Energy Markets

  • The structure of energy markets: oil, gas and power
  • Benefits and costs from energy trading
  • The use of energy derivatives for managing market exposure

Basic Energy Derivatives

  • Basic Energy Derivatives
  • The difference between Futures and Forwards contracts
  • Examples: NYMEX and IPE Futures
  • How to build tailor-made risk profiles
  • Examples: NYMEX and IPE Futures

Cash Flow Hedging using Energy Derivatives

  • Hedging price spreads: Spread options (Spark spread, Crack Spread)
  • Hedging volume risk: weather derivatives
  • Hedging average prices: Asian-style options
  • Interruptible clauses and swing contracts

2. ECONOMETRIC MODELLING OF ENERGY PRICES

Spot price modelling and estimation

  • Equilibrium spot models
  • Synthetic Models
  • Step 2: Combining mean reversion and jumps
  • Step 3: Adding a load forecast and correlation

Forward price modelling and estimation

  • Building the forward curve: price stripping and quotes interpolation
  • Framework 1: spot - convenience yield models (Gibson-Schwartz)
  • Framework 2: forward curve models (Jamshidian)
  • Pricing commodity derivatives
  • Framework 3:  long-short term price models (Schwartz-Smith)

PC Applications

  • Application 1: How to estimate price trend and periodical components
  • Application 2:Monte Carlo simulation
  • Application 3: How to estimate the Threshold Model for electricity prices
  • Application 4: How to calibrate the Schwartz-Smith oil price model

3. RISK MEASUREMENT AND MANAGEMENT APPLICATIONS

Measuring Risk

  • Risk classes: Market risk, Strategic risk, Credit risk, Operational risk
  • Market Value-at-Risk
  • Alternative operational approaches for computing Value-at-Risk: (parametric, Monte Carlo, historical simulation)

Managing Risk

  • Volatility and correlation
  • How to hedge a full requirement deal using futures
  • RAROC and VaR Hedging
  • Mean square error minimization

PC Applications

  • Application 1: Factor identification via PCA and volatility estimation
  • Application 2: Estimating cross-price correlation
  • Application 3: How to estimate volatility using GARCH
  • Application 4: Var measurement of energy portfolios

 

     

     

     

     

     


     

     


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