Post Conference Seminar, Friday 15 October 2010

Modelling energy spots, forwards, swaps and options with applications in energy trading, risk management and physical assets valuation

Valery Kholodnyi,
Principal Quantative Analyst
VERBUND AUSTRIAN POWER TRADING

09.00 Modelling energy spots, forwards and swaps

• Overview of the existing approaches
• Benefits of a unified framework applicable across instruments, commodities and regions
• The non-Markovian approach as a unified framework for the consistent modelling of energy spots, forwards and swaps
• Taking into account cyclical patterns, trends and spikes
• Extracting the market price of risk and risk-neutral probability distributions
• Analytical modelling of energy forwards and swaps for energy spots with Pareto spikes
• Examples of oil, natural gas, power and carbon markets

10.30 Coffee break

11.00 Pricing and hedging European energy options

• Pricing European options on energy spots as well as pricing and hedging European options on energy forwards and swaps for energy spots with spikes in the non-Markovian approach
• Analytical pricing of European call and put options on energy spots as well as analytical pricing and hedging of European call and put options on energy forwards and swaps for energy spots with Pareto spikes
• Analytical modelling of the implied volatility for European call and put options on energy forwards and swaps for energy spots with Pareto spikes

12.30 Lunch

13.30 Pricing and hedging multi-commodity European energy options

• Pricing European options on several energy spots with or without spikes in the non-Markovian approach
• Pricing and hedging European options on several energy forwards and swaps for energy spots with or without spikes
• Pricing and hedging European spread options: the transportation, spark spread and transmission options

15.00 Coffee break

15.30 Pricing and hedging exotic energy options

• Analytical pricing and hedging of full-requirements contracts viewed as real options by the method of eigenclaims in the non-Markovian approach
• Pricing and hedging Bermudan and American options on energy spots, forwards and swaps for energy spots with spikes in the non-Markovian approach:
  − the semilinear evolution equation and multi-layered tree methods
  − extracting risk-neutral probability distributions
  − examples of the Bermudan and American options on crude oil, natural gas and power

17.00 End of seminar