Valuation Gas Storage & Flexibility Instruments
1-2 December 2009, New York

The course is highly practical: throughout the course you will work on case studies with specialized analysis models for plant valua- tion and hedging analysis. The models will be provided to you for the duration of the course plus a month thereafter. Apart from case studies, the course also features an energy trading game. The goal is to optimize a portfolio of power plants, while hedging in the market and responding to news.

 

Session 1: European gas markets and gas storage developments

  • Overview & development European gas markets and trading hubs
  • Traditional use of flexibility instruments
  • Overview of swing / Take-or-Pay contracts

 

Session 2: Storage valuation: Trading forwards in a dynamic hedging strategy

  • intrinsic, rolling intrinsic and basket-of-spreads valuation
  • Overview valuation approaches to physical and financial storage
  • Forward curve building: from tradable contracts to an ‘expected’ curve
  • Understanding intrinsic value
  • Developing a cash-flow valuation model for a storage investment

 

Session 3: Gas price dynamics and the real option approach to storage & swing

  • Volatility definitions (historical versus implied) and estimation procedures for spot and forward prices
  • Mean reversion: definition, estimation approaches and impact of seasonality
  • Forward curve dynamics: short-term, long-term and summer-winter spread
  • Correlation and cointegration between gas and oil prices
  • A storage as a basket of time-spreads
  • Pricing American-style options: a tree based approach versus least-squares Monte Carlo

 

Session 4: Applying storage / swing valuation and hedging strategies in practice

  • Assumptions behind different valuations: impact of market liquidity constraints, volatility, mean-reversion and interpreting delta hedges
  • Guidelines for setting up a backtest

 



 

 

 

 

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