This volume is a collection of chapters covering the latest developments in applications of financial mathematics and statistics to topics in energy, commodity financial markets and environmental economics. The research presented is based on the presentations and discussions that took place during the Fields Institute Focus Program on Commodities, Energy and Environmental Finance in August 2013. The authors include applied mathematicians, economists and industry practitioners, providing for a multi-disciplinary spectrum of perspectives on the subject.The volume consists of four sections: Electricity Markets, Real Options, Trading in Commodity Markets, and Oligopolistic Models for Energy Production. Taken together, the chapters give a comprehensive summary of the current state of the art in quantitative analysis of commodities and energy finance. The topics covered include structural models of electricity markets, financialization of commodities, valuation of commodity real options, game-theory analysis of exhaustible resource management and analysis of commodity ETFs. The volume also includes two survey articles that provide a source for new researchers interested in getting into these topics.
Managing Energy Risk A Practical Guide for Risk Management in Power, Gas and Other Energy Markets Second Edition Managing Energy Risk: A Practical Guide for Risk Management in Power, Gas and Other Energy Markets, Second Edition is the essential guide to modern techniques in financial mathematics for trading energy. Following the successful first edition, it addresses the significant developments of energy markets over recent years and contains substantial new material to meet the requirements of these advances. The book covers energy markets for electricity, natural gas, coal, oil and the market for emission certificates. It also focuses on the renewable energy sector, particularly the energy economic principles, value drivers and risks related to hydro, wind, solar and bio energy. This text integrates energy economic approaches, including fundamental market models with financial engineering approaches commonly used in banks and other trading companies. This includes trading, valuation and risk management of spot products, commodity futures and swaps, structured products such as swing contracts and real options like power plants or gas storages. A multi-commodity approach is taken, covering the mutual influences of electricity, fuels and emission markets. Advantages and disadvantages of different modelling and risk management approaches for practical usage are discussed throughout. Written for researchers and professionals, Managing Energy Risk Second Edition, is an ideal reference for those from an energy economics background as well as those with experience in financial mathematics or trading. The book introduces a wide range of theoretical concepts as well as focusing on applications within the energy business.
Structured Products Volume 2 consists of 5 Parts and 21 Chapters covering equity derivatives (including equity swaps/options, convertible securities and equity linked notes) , commodity derivatives (including energy, metal and agricultural derivatives), credit derivatives (including credit linked notes/collateralised debt obligations ('CDOs')), new derivative markets (including inflation linked derivatives and notes, insurance derivatives, weather derivatives, property, bandwidth/telephone minutes, macro-economic index and emission/environmental derivatives ) and tax based applications of derivatives. It also covers the structure and evolution of derivative markets including electronic trading markets and the origins, evolution and prospects for derivative markets. EQUITY LINKED STRUCTURES 1 Equity Derivatives - Equity Futures; Equity Options/Warrants & Equity Swaps 2. Convertible Securities 3. Structured Convertible Securities 4. Equity Linked Notes 5. Equity Derivatives - Investor Applications 6. Equity Capital Management - Corporate Finance Applications of Equity Derivatives COMMODITY LINKED STRUCTURES 7. Commodity Derivatives - Commodity Futures/Options, Commodity Swaps and Commodity Linked Notes 8. Commodity Derivatives - Energy (Oil, Natural Gas and Electricity) Markets 9. Commodity Derivatives - Metal Markets 10. Commodity Derivatives - Agricultural and Other Markets CREDIT DERVIATIVES 11. Credit Derivative Products 12. Credit Linked Notes/Collateralised Debt Obligations 13. Credit Derivatives/Default Risk - Pricing and Modelling 14. Credit Derivatives - Applications/Markets NEW MARKETS 15. Inflation Indexed Notes and Derivatives. 16. Alternative Risk Transfer/Insurance Derivatives 17. Weather Derivatives 18. New Markets - Property; Bandwidth; Macro-Economic and Environmental Derivatives 19. Tax and Structured Derivatives Transactions EVOLUTION OF DERIVATIVES MARKETS 20. Electronic Markets and Derivatives Trading 21. Financial Derivatives - Evolution and Prospects
This book takes a theoretical and practical look at some of the latest and most important ideas behind derivatives pricing models. In each chapter the author highlights the latest thinking and trends in the area. A wide range of topics is covered, including valuation methods on stocks paying discrete dividend, Asian options, American barrier options, Complex barrier options, reset options, and electricity derivatives. The book also discusses the latest ideas surrounding finance like the robustness of dynamic delta hedging, option hedging, negative probabilities and space-time finance. The accompanying CD with additional Excel sheets includes the mathematical models covered in the book. The book also includes interviews with some of the world's top names in the industry, and an insight into the history behind some of the greatest discoveries in quantitative finance. Interviewees include: Nassim Taleb on Black Swans Edward Thorp on Gambling and Trading Alan Lewis on Stochastic Volatility and Jumps Emanuel Derman, the Wall Street Quant Peter Carr, the Wall Street Wizard of Option Symmetry and Volatility Clive Granger, Nobel Prize winner in Economics 2003, on Cointegration Stephen Ross on Arbitrage Pricing Theory Bruno Dupire on Local and Stochastic Volatility Models Eduardo Schwartz the Yoga Master of Quantitative Finance Aaron Brown on Gambling, Poker and Trading Knut Aase on Catastrophes and Financial Economics Elie Ayache on Modeling Paul Wilmott on Paul Wilmott Andrei Khrennikov on Negative Probabilities David Bates on Crash and Jumps Peter Jäckel on Monte Carlo Simulation
Responding appropriately to challenges separates successful companies from those who won't survive. Containing contributions from renowned scholars and academics from around the world, Generating Electricity in a Carbon-Constrained World explores the various energy production options available to power companies in a carbon-constrained world and provides answers in the form of expert commentary backed be real-world case studies. The three-part treatment starts with a clear and rigorous exposition of the short-term options, including clean coal, carbon capture and sequestration technology, coal, and emission trading. Renewable energy options such as nuclear energy, wind power, solar power, hydroelectric and geothermal energy are clearly explained along with their trade-offs and uncertainties inherent in evaluating and choosing different energy options and provides a framework for assessing policy solutions.
Derivatives Models on Models takes a theoretical andpractical look at some of the latest and most important ideasbehind derivatives pricing models. In each chapter the authorhighlights the latest thinking and trends in the area. A wide rangeof topics are covered, including valuation methods on stocks payingdiscrete dividend, Asian options, American barrier options, Complexbarrier options, reset options, and electricity derivatives. The book also discusses the latest ideas surrounding financelike the robustness of dynamic delta hedging, option hedging,negative probabilities and space-time finance. The accompanyingCD-ROM with additional Excel sheets includes the mathematicalmodels covered in the book. The book also includes interviews with some of the world'stop names in the industry, and an insight into the history behindsome of the greatest discoveries in quantitative finance.Interviewees include: * Clive Granger, Nobel Prize winner in Economics 2003, onCointegration * Nassim Taleb on Black Swans * Stephen Ross on Arbitrage Pricing Theory * Emanuel Derman the Wall Street Quant * Edward Thorp on Gambling and Trading * Peter Carr the Wall Street Wizard of Option Symmetry andVolatility * Aaron Brown on Gambling, Poker and Trading * David Bates on Crash and Jumps * Andrei Khrennikov on Negative Probabilities * Elie Ayache on Option Trading and Modeling * Peter Jaeckel on Monte Carlo Simulation * Alan Lewis on Stochastic Volatility and Jumps * Paul Wilmott on Paul Wilmott * Knut Aase on Catastrophes and Financial Economics * Eduardo Schwartz the Yoga Master of Quantitative Finance * Bruno Dupire on Local and Stochastic Volatility Models
This book presents an overview of the risks involved in modern electricity production, delivery and trading, including technical risk in production, transportation and delivery, operational risk for the system operators, market risks for traders, and political and other long term risks in strategic management. Using decision making under uncertainty as a methodological background, the book is divided into four parts, with Part I focusing on energy markets, particularly electricity markets. Topics include a nontechnical overview of energy markets and their main properties, basic price models for energy commodity prices, and modeling approaches for electricity price processes. Part II looks at optimal decisions in managing energy systems, including hydropower dispatch models, cutting plane algorithms and approximative dynamic programming; hydro-thermal production; renewable; stochastic investments and operational optimization models for natural gas transport; decision making in operating electricity networks; and investment in extending energy production systems. Part III explores pricing, including electricity swing options and the pricing of derivatives with volume control. Part IV looks at long-term and political risks, including energy systems under aspects of climate change, and catastrophic operational risks, particularly risks from terrorist attacks.
Derivatives Models on Models takes a theoretical and practical look at some of the latest and most important ideas behind derivatives pricing models. In each chapter the author highlights the latest thinking and trends in the area. A wide range of topics are covered, including valuation methods on stocks paying discrete dividend, Asian options, American barrier options, Complex barrier options, reset options, and electricity derivatives. The book also discusses the latest ideas surrounding finance like the robustness of dynamic delta hedging, option hedging, negative probabilities and space-time finance. The accompanying CD-ROM with additional Excel sheets includes the mathematical models covered in the book. The book also includes interviews with some of the world s top names in the industry, and an insight into the history behind some of the greatest discoveries in quantitative finance. Interviewees include: Clive Granger, Nobel Prize winner in Economics 2003, on Cointegration Nassim Taleb on Black Swans Stephen Ross on Arbitrage Pricing Theory Emanuel Derman the Wall Street Quant Edward Thorp on Gambling and Trading Peter Carr the Wall Street Wizard of Option Symmetry and Volatility Aaron Brown on Gambling, Poker and Trading David Bates on Crash and Jumps Andrei Khrennikov on Negative Probabilities Elie Ayache on Option Trading and Modeling Peter Jaeckel on Monte Carlo Simulation Alan Lewis on Stochastic Volatility and Jumps Paul Wilmott on Paul Wilmott Knut Aase on Catastrophes and Financial Economics Eduardo Schwartz the Yoga Master of Quantitative Finance Bruno Dupire on Local and Stochastic Volatility Models
Around the world, liberalization and privatization in the electricity industry have lead to increased competition among utilities. At the same time, utilities are now exposed more than ever to risk and uncertainties, which they cannot pass on to their customers through price increases as in a regulated environment. Especially electricity-generating companies have to face volatile wholesale prices, fuel price uncertainty, limited long-term hedging possibilities and huge, to a large extent, sunk investments. In this context, Uncertainty in the Electric Power Industry: Methods and Models for Decision Support aims at an integrative view on the decision problems that power companies have to tackle. It systematically examines the uncertainties power companies are facing and develops models to describe them - including an innovative approach combining fundamental and finance models for price modeling. The optimization of generation and trading portfolios under uncertainty is discussed with particular focus on CHP and is linked to risk management. Here the concept of integral earnings at risk is developed to provide a theoretically sound combination of value at risk and profit at risk approaches, adapted to real market structures and market liquidity. Also methods for supporting long-term investment decisions are presented: technology assessment based on experience curves and operation simulation for fuel cells and a real options approach with endogenous electricity prices. TOC:Introduction.- Deregulation and Markets in the Electricity Industry.- Decision Making and Uncertainties in the Electricity Industry.- Modelling Electricity Prices.- Modeling Competition in the Electricity Industry.- Optimizing Generation and Trading Portfolios.- Risk Management and Risk Controlling.- Technology Assessment.- Investment Decisions.- Final Remarks.- References.- Index.