Advanced Energy Derivatives Pricing, Hedging and Risk Management - DPH3
CPE Credits Awarded: 16
Categories: Trading, Derivatives, Hedging and Risk Management, Global Association of Risk Professionals (GARP) Approved Course
This highly applied and practical course is designed for energy risk practitioners interested in enhancing their knowledge of best practices in valuation, hedging and risk management of derivatives portfolios.
The course builds on the concepts introduced in DPH1 and DPH2 and explores advanced strategies used to price, hedge and manage the risk of derivatives in leading energy trading organizations. Delegates learn about the practical applications of the models and strategies from the point of view of users of those models, not the quantitative developers.
Advanced market risk management topics such as marginal VaR analysis, backtesting VaR models and Extreme Value Theory (EVT) as well as risk metrics such as Earnings at Risk (EaR), Cash Flow at Risk (CFaR) and Economic Capital are covered with practical examples. Several case studies illustrate how to set an effective system of risk limits and risk-adjusted performance measurement.
DPH3 also covers best practices in counterparty risk management. Metrics such as Potential Future Exposure (PFE) and Credit Valuation Adjustments (CVA) are introduced in the context of contract valuation and risk charges.
Delegates learn techniques to hedge in illiquid markets using proxy hedges and how to futures equivalent position reports. Delegates also conduct exercises using volatility surfaces, skew-adjusted Greeks, and stochastic volatility models.
This highly interactive workshop uses current case studies, Excel exercises and group discussions to reinforce the concepts presented in the lectures.
Recommended prerequisites: DPH1, DPH2
Please note: a laptop and Excel version 2007 or later is required in order to engage in market data. Not sure if you have the appropriate experience? Click here to test yourself on the knowledge necessary for this course.
Please note: a laptop and Excel version 2007 or later is required in order to engage in market data.
Not sure if you have the appropriate experience? Click here to test yourself on the knowledge necessary for this course.
The Oxford Princeton Programme is registered with GARP as an Approved Provider of Continuing Professional Development (CPD) credits. The Oxford Princeton Programme has determined that this program qualifies for 16 GARP CPD credit hours. If you are a Certified FRM or ERP, please record this activity in your Credit Tracker at http://www.garp.org/cpd
- Market risk managers
- Energy traders
- Trading managers
- End-users of derivatives in corporations
- Credit risk analysts
- Risk consultants
- Risk and audit committee members
- CFOs and treasury managers
- Finance department personnel
- Compliance managers
- Middle and back-office personnel
- Treasurers and treasury analysts
- Chief risk officers
301: Delta-hedging and ‘proxy’ hedging
- Using "proxies" for hedging analysis; review of regression analysis applied to hedging
- Case study: Single vs. multiple proxy hedges
- Delta hedging of option portfolios; key considerations.
- Delta-gamma hedging and Delta-gamma-vega hedging
- Cross-hedging and cross-market Greeks
- Case study: Hedging currency and commodity risk
- Time Spreads and Delta Neutrality. Creating a delta-neutral portfolio with time spreads.
302: Portfolio management of forward and swaps
- OTC swaps, forwards and futures: Key valuation considerations
- Forward curve building and validation in illiquid markets
- Step by step valuation of a portfolio of swaps
- Case study: Hedging a swap portfolio with futures
- Application of cash flow map and settlement reports
- Adding the counterparty risk dimension with CVA
- Front-Month equivalent (FME): Calculating FME positions and setting bid-ask spreads
- Hedging a portfolio of swaps
- P&L decomposition and attribution
303: Energy Price Behaviour: Overview of forward curve models
- Forward curve behavior in oil, gas and power markets
- Review of spot price models: GBM, GBM w/ MR, MRJD
- Multi-factor and multi-commodity models: Structured Monte Carlo (Cholesky-based) vs. Principal component analysis (PCA).
- Excel exercises with PCA and Structured Monte Carlo Simulation.
- Case study: Designing stress tests with Principal Component Analysis (PCA)
- Seasonality and Forward Curve Simulations
304: Advanced Market Risk Management for Energy Trading
- Overcoming known problems with VaR models
- Case study: How to game VaR
- Introducing Volatilities as Risk Factors
- Advanced Historical Simulation (HS): EWMA HS and Volatility-Updated HS
- Marginal VaR analysis: Applications for Hedging and Risk Management
- Backtesting VaR models: Statistical tests
- Tail “heaviness” and Tail “asymmetry”: ETL and other Risk measures.
- Extreme Value Theory VaR and ETL
- Integrating stress tests into the tail analysis.
305: Counterparty Risk Management
- Counterparty risk trading in energy trading
- Current Exposure, Expected Exposure vs. potential future exposure
- Potential exposure and the role of margin, collateral and settlements.
- Calculating PFE in Excel for Commodity Swaps and Forwards
- Counterparty Valuation Adjustments (CVA)
- Counterparty VaR and dynamic potential exposure. Adding default probabilities.
- Using CVA and PFE to set counterparty limits and credit charges .
306: Earnings at Risk, Cash Flow at Risk and Economic Capital
- Earnings at risk and cash flow at risk for multiple maturities
- Identifying natural risk drivers and macro hedges
- Margin-at-risk calculation and liquidity risk management
- Evolution of prices, volatilities, and correlations in a dynamic simulation framework
- Economic capital and RAROC
- Case Study: Calculation of economic capital and pre-trade risk charges
307: Basis Risk Management and Derivatives in Energy Markets
- Review of basis Instruments: Basis Swaps and Spread Options
- Understanding and using correlation in valuation and risk measurement.
- Pitfalls of correlation as a measure of dependence
- Short-term correlation vs. long term co-movement (cointegration)
- IAS 39/IFRS 9 and Hedge Effectiveness. Ex-ante vs. Ex-post Tests.
- Minimum Variance Ratio using Volatility and Correlation Analysis
- Case study: Basis risk and hedging instruments
- Case Study: LNG trading and arbitrage strategies
308: Advanced Valuation topics and Volumetric Risk pricing and hedging
- Pricing and hedging options with volatility surfaces
- Skew-adjusted delta and gammas
- Implied volatilities and implied price distributions
- Stochastic volatility models in commodity markets
- Valuation and hedging of exposures with volumetric risk
- Introduction to Least-squares Monte Carlo
- Case study: Pricing an American option with the Longstaff-Schwartz method
DR CARLOS BLANCO is an expert in energy, commodity, and financial risk management and modeling. He has been a faculty member of the Oxford Princeton Programme since 2004, where he teaches the Derivatives Pricing Hedging and Risk Management Certificate Programme as well as courses on Counterparty Risk Management and Gas and Power Trading and Risk Management.
He has published over 100 articles on financial, energy, and commodity trading, hedging and risk management. He is the founder and managing director of a risk management advisory firm with clients in North America, Europe, Africa and Asia. Carlos is a former VP, Risk Solutions at Financial Engineering Associates. There, he worked over six years as an essential contributor in the development of the energy derivatives valuation and risk management models of the firm. He also provided leading-edge risk advisory and educational services to over 500 energy and commodity trading firms and financial institutions worldwide. He also managed the world-class support and professional services department within the firm. Prior to FEA, Carlos worked for a hedge fund in the Midwest and an asset management firm in Madrid, Spain. He is a former regional director of the Professional Risk Managers’ International Association (PRMIA).
“Great course which did a good job of explaining advanced and complex topics into easy to understand terms. Would recommend Oxford Princeton to colleagues.” M.B., Terasen Gas
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