Abstracts

• Prof. Fred Aspen Benth, University of Oslo

Stochastic Modelling of Electricity Markets


Stochastic processes for modelling electricity markets are discussed. More specifically, we consider jump-based spot price models which take seasonality, mean-reversion and spikes into account. Next, the connection between forward and spot prices are critically discussed, where the consequences of non-storability of electricity is problematized. Some new perspectives on the spot-forward relationship is analysed, in particular an approach where future information plays the crucial role.
Bullet points:
* Spot price models based on jump processes
* Forward pricing
* Stochastic risk premium
* Non-storability of electricity
* The effect of future market information in electricity markets
* Enlargement of filtrations and forward prices
The presentation will be based on market data from various electricity markets like EEX and Nord Pool. Parts of the material presented is taken from Dr. Benth's book Stochastic Modelling of Electricity and Related Markets.





• Reinhard Hirsch, RH Management Consulting

Risk Management for Crude Oil and Refined Products


Bullet points
(i) Introduction to Crude Oil and Petrochemical Market
* Crude Oil Streams and Markets
* Refined Products and Petrochemicals
(ii) Commodity Analysis and Modelling
* One and Multi Factor Spot Price Models
* Product Spreads and Margins
* Forward Curves Modelling
* Seasonality
(iii) Commodity Risk Management
* Commodity Market Risk
* Exposure Measurement - Margin and Cash Flow at Risk
* Real World Drivers
* Hedging Strategy




• Dr. Kay Frederik Pilz, E.ON

A Hybrid Commodity and Interest Rate Market Model


A market model that jointly models commodity forwards and forward interest rates will be presented in this session. On basis of the LIBOR Market Model (LMM) we utilize its multi-currency extension to build a hybrid model for both asset classes. The domestic fixed income market will be interpreted in the usual way for the LMM, i.e. with a given bond market paying in a certain currency (say USD), whereas the foreign market will be associated with a commodity market (e.g. crude oil), with the physical commodity as its currency, and the “convenience yield” as its rate of interest.
After introducing the hybrid model the talk focuses on its calibration to common instruments of the interest forward rate and commodity forward markets. Since for many commodities liquid market prices are only available for options on commodity futures, rather than forwards, we take the difference between forward and futures prices into account. Further, we construct a procedure to achieve a consistent fit of the model to market data for interest options, commodity options and historically estimated correlations between interest rates and commodity prices.
The applicability of the model will be demonstrated by presenting an elaborated calibration to the USD interest market and to the WTI crude oil futures market in detail. Furthermore, the calibrated model will be applied to calendar spread option pricing.
The talk is based on a joint work with Erik Schlögl.

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