Post-congress seminar 2, May 19, 2011

DERIVATIVES AND STRUCTURED PRODUCTS IN ENERGY: VALUATION, RISK, AND NEW MARKET STRUCTURES

Michael Rosenberg, Manager, ACTIVE POWER INVESTMENTS
8.30 Registration and refreshments

9:00 Derivatives and Structured Products in Energy

• Risk exposures of energy players: consumers, producers, traders, ‘all-purpose' players
• What is structuring and why?
• The No-arbitrage principle and the replicating portfolio
• Categorizing derivative products
o Plain vanilla
o Exotic options
o Real options
o Examples
• Pricing determinants of derivative products: forward prices, volatilities, correlations, cross-commodity features
• Advantages of using plain vanilla options and futures for structured products
• The building blocks of structured hedging products
• Derivative packages as a means to control exposures - simple examples
• Extending collars: trading off risk and return with floors, caps, and collars
• Business case: structuring commodity supply with volumetric flexibility

10.30 Morning break

10:45 Building blocks of structured products: Exotic options

• Valuation methods for exotic options
• Spread options
• Business case: dispatching power plants under extreme conditions
• Swaptions (basket options)
• Barrier binary options
• Asian options

12.15 Lunch

13.30 Real options and structured products: valuation and risk management

• Real options
• VaR and unhedgeable risks
• Business case: power swing in retail contracts
• Valuation and risk management
• Business case: exchanging binary for swing

15.15 Afternoon break

15.30 New power market opportunities and strategies

• Overview of deregulated power markets
• Types of nodal trading
• Virtual transactions: instruments of arbitrage
• Virtual trading: Virtues and challenges
• Participation in the market: financial vs. physical
• Market performance
• Impact on the market: price divergence
• Impact again: market price of risk
• Transmission rights: structure, use, and misuse
• Old markets, new markets
• Hedge or spec?
• Risk versus reward: are transmission rights priced efficiently?

17.00 End of seminar