Advanced 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

Course Date Duration Venue Price Registration Deadline Register
07 Nov 2022 2 Days Calgary, Canada Country: ca
$ (USD) 2,620.00+5%GST
30 Sep 2022

COURSE SUMMARY

Advance Derivatives Markets, Hedging, and Risk Management is a two-day instructor led course presented by the energy training experts at Mennta Energy Solutions. This highly applied and practical energy training course is designed for energy risk practitioners interested in enhancing their knowledge of best practices in valuation, hedging and risk management of derivatives portfolios.

Delegates are introduced to the most commonly used derivatives pricing models in energy trading organizations such as closed-form solutions and Monte Carlo simulation. The main price processes for energy risk analysis such as Geometric Brownian Motion and Mean-reverting models are illustrated with pricing and risk analysis examples.

This advanced trading 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 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.

This highly interactive workshop uses current case studies, Excel exercises and group discussions to reinforce the concepts presented in the lectures.

Please note: a laptop and up-to-date version of Office would be an advantage in order to engage in market data; however it is not essential.

PRE-REQUISITES

Recommended prerequisites: DPH1, DPH2

Not sure if you have the appropriate experience? Click here to test yourself on the knowledge necessary for this course.

WHO SHOULD ATTEND?

  • 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

COURSE CONTENTS

Day 1

301: Energy Price Behavior: Overview of spot price models

-    Spot price models for energy and commodity markets
-    Understanding price processes and parameter calibration
-    Geometric Brownian motion (GBM) and Mean reversion
-    Case Study: Simulating prices with GBM and a mean-reverting process in Excel.
-    Jump diffusion with mean reversion (MRJD) processes
-    Modelling hourly and sub-hourly prices in power markets

302: Introduction to Derivatives Pricing Models

-    Mark-to-market vs. mark-to-model. Conceptual Interpretation.
-    Closed-form solutions (formulas)
-    Case Study: Pricing Options using Black 76 in Excel.
-    Implied Volatility. Skews and Surfaces. Delta and moneyness surfaces  
-    Case Study: Bank of Montreal Natural Gas derivatives mispricing
-    Monte Carlo simulation for European and Path-dependent options
-    Case study: How to add thousands of simulations in Excel
-    Binomial and trinomial trees. Case Study: Pricing an American option.
-    Counterparty valuation adjustments (CVA) and liquidity bid-ask adjustments

303: Energy Price Behavior: Overview of forward curve and spread models

-    Spot and Forward curve behavior in oil, gas and power markets
-    Case study: Evolution of forward curves for oil and gas
-    Multi-factor and multi-commodity models
-    Structured Monte Carlo (Cholesky) with correlated random shocks
-    Principal component analysis (PCA): Main uses and applications
-    Excel exercises with PCA and Structured Monte Carlo Simulation.
-    Case study: Destination option analysis and valuation with Monte Carlo

304: Market Risk Management for Energy Trading (III)

-    Review of probability and statistics for VaR analysis
-    Variance-covariance, Historical and Monte Carlo Simulation
-    Case study: How to game VaR
-    Overcoming known problems with VaR models
-    Case study: VaR for option portfolios with volatilities as risk factors
-    Advanced Historical Simulation (HS): EWMA HS and Volatility-Updated HS
-    Tail “heaviness” and Tail “asymmetry”: ETL and other Risk measures.
-    Extreme Value Theory VaR and ETL
-    Integrating stress tests into the tail analysis.

Day 2

305: Enterprise Risk Management and Key Risk Indicators (KRIs)

-    Risk Metrics and Enterprise Risk Management
-    Value and flow metrics: Main uses and differences
-    Earnings at risk, Cash Flow at risk and Gross Margin at risk for multiple maturities
-    Margin-at-risk calculation and liquidity risk management
-    Excel Case study: Multi-step Earnings at Risk calculation for an energy producer
-    Economic capital and RAROC
-    Case Study: Calculation of economic capital and pre-trade risk charges

306: Counterparty Risk Management

-    Counterparty risk trading in energy trading
-    Estimating default probabilities and internal rating systems
-    Current Exposure, Expected Exposure vs. potential future exposure
-    Potential exposure and the role of margin, collateral and settlements.
-    Excel case study: Calculating PFE for Commodity Swaps and Physical Forwards
-    Counterparty Valuation Adjustments (CVA)
-    Using CVA and PFE to set counterparty limits and credit charges

307: Market Risk Management: Marginal VaR analysis and Attribution

-    Deconstructing Risk: Marginal VaR
-    Explaining VaR changes with a risk attribution report
-    Marginal VaR analysis: Applications for Hedging and Risk Management
-    Minimum Variance Ratio using Volatility and Correlation Analysis
-    How to find the VaR minimizing position: Trade risk profiles and best hedges
-    Pitfalls of correlation as a measure of dependence
-    Short-term correlation vs. long term co-movement (cointegration)

308: Advanced Valuation topics in pricing and hedging

-    Pricing options with volatility surfaces
-    Stochastic volatility models in commodity markets
-    Case study: Simulating forward prices with stochastic volatility
-    Valuation and hedging of exposures with volumetric risk: Understanding Gamma risk
-    Demand-driven uncertainty and volumetric risk (e.g. weather-driven loads)
-    Supply-driven uncertainty and volumetric risks (e.g. renewables, operations risks)
-    Case study: Hedging strategies for wind and solar generation

Course Wrap-up

FACULTY

DR CARLOS BLANCO is a financial risk management expert with over 20 years of diverse experience in energy and financial markets. Throughout his extensive career, he has worked with some of the largest energy and commodity market firms worldwide providing advisory services, educational and software solutions.

He is currently managing director for Ascend Analytics a firm providing market intelligence and decision analysis tools to support the energy transition. He has advised risk groups, boards and senior management in renewables, oil, gas, power, mining and trading firms on risk management and business strategy including governance, risk policy, hedging strategy, risk appetite, risk and performance metrics and risk model development and validation.

Dr. Blanco is an active faculty member for Mennta Energy Solutions since 2004, and he has conducted a wide range of energy derivatives hedging, pricing and risk management seminars worldwide. He also teaches several courses on environmental finance, sustainability, and climate risk as well as portfolio management for renewables resources. A frequent conference speaker and writer, he has coauthored over 150 articles for Energy Risk Magazine, Journal of Portfolio Management, Commodities Now, Energy Metro Desk, Oil and Gas Journal and others.

He is a former VP Risk Solutions at Financial Engineering Associates, Inc (a MSCI/BARRA Company), where he managed the market risk suite of products as well as the firm’s product support and professional services group. He also taught finance at the University of California, Berkeley, and the ABN AMRO Academy. Dr. Blanco was recently awarded the GARP Sustainability and Climate Risk (SCR) certification.

TESTIMONIALS

“Great course which did a good job of explaining advanced and complex topics into easy to understand terms.” M.B., Terasen Gas

“Carlos is a great instructor.  Very knowledgeable and an excellent teacher.  He makes the concepts clear and easy to follow.” A.S., Northwest Natural

GARP rgbMennta Energy Solutions is registered with GARP as an Approved Provider of Continuing Professional Development (CPD) credits. Mennta Energy Solutions 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


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