Intermediate Derivatives Markets, Hedging and Risk Management - DPH2 

CPE Credits Awarded: 16
Categories: Trading, Derivatives, Hedging and Risk Management, Global Association of Risk Professionals (GARP) Approved Course

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The Intermediate Derivatives Markets, Hedging, and Risk Management is a two-day class presented by the energy training experts at Mennta Energy Solutions. This is an intermediate course for professionals interested in improving their knowledge of energy derivatives hedging and risk management.

The course provides an overview of energy price behavior, and applied probability and statistics using Excel exercises with hands-on calculations. After introducing the building blocks of risk analysis, multiple exercises show how to calculate volatilities, correlations, Value at Risk and other risk metrics.

Delegates explore some of the main tools to manage and report market risk in energy portfolios such as VaR, Stress Tests and Backtesting. Various hands-on case studies show the step-by-step calculations for variance-covariance, Monte Carlo and Historical Simulation VaR for energy portfolios.

The course also covers derivatives instruments for basis risk management such as basis swaps and spread options and the use of correlation and regression to identify and measure basis risks. Case studies show to hedge in illiquid markets using proxy hedges.

The use of option strategies such as costless collars, 3-way collars, straddles and structured products is shown in an applied context, with emphasis on benefits and limitations in comparison to other hedging instruments.

The main option “Greeks’ (Delta, Gamma, Vega and Theta) are also presented using practical exercises and main uses.

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.


DPH1 or basic knowledge of energy markets, futures, swaps, forwards and options.

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


  • 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


Day 1:

Course Introduction

201: Review of Energy Price Behavior, Probability and Statistics

-    Overview of energy price behavior; seasonality; mean reversion; spikes
-    Volatility structure in energy markets; spot vs. forwards
-    Probability distributions; moments of a distribution, histograms and QQ plots.
-    Excel exercises with hands-on calculations of volatilities, correlations
-    Introduction to Monte Carlo simulation in Excel using normal distributions (NEW)
-    Case study: VaR calculation for a single exposure.
-    Calculating and interpreting rolling window volatilities and correlations in Excel

202:  Market Risk Management for Energy Trading (I)

-    Best practices of market risk management in energy markets
-    Market risk policies and procedures: Key components and effective oversight (NEW)
-    Case study: interpretation of market risk disclosures for large energy firm
-    Understanding VaR and Expected tail loss (ETL)
-    A simple way to calculate VaR: Top Down Approach
-    Risk limits and risk reports
-    Backtesting market risk models
-    Oil, power and gas specific issues

203: Market Risk Management for Energy Trading (II)

-    VaR methodologies
-    Choice of confidence level and horizon
-    Excel Case Studies for energy portfolios
        - Analytic or Variance Covariance VaR.
            - Review of Matrix Multiplication in Excel
        - Monte Carlo Simulation
            - Geometric Brownian Motion
            - Simulating correlated market prices
        -Historical simulation
-    Comparative Analysis of VaR methodologies (NEW)

204: Stress Testing and Backtesting  for Energy and Commodity Firms

-    Designing and conducting stress tests for energy portfolios
-    Benefits of stress tests
-    Standard & Poors liquidity risk survey and Stress Testing
-    Integrating stress tests in the risk modeling process
-    Reverse stress tests for energy portfolios (NEW)
-    Stress tests for crude and products; gas; electricity
-    Exercise: Creating and presenting stress test reports

End of Day Summary

Day 2

205. Analysis of Derivative Strategies

-    Review of key option concepts.
-    Zero-cost collars. Uses and misuses.
-    Case Study: Using Zero Cost Collars in a Hedging Program
-    Call and Put spreads. Main uses. (NEW)
-    Three-way Collars: Aggressive vs. Conservative strategies
-    Volatility Plays: Straddles and Strangles
-    Comparing the risk and benefits of various hedging strategies

206: Understanding option sensitivities through the "Greeks"

-    Review of Black-76 and valuation of options
-    Option Greeks: Definition, calculation and main uses
-    Sensitivity vs. Price: Delta and Gamma
-    Volatility exposure and Vega
-    Theta and time decay.
-    Case study: calculating and visualizing "Greeks" in Excel
-    Delta hedging of option portfolios; key considerations (NEW)
-    Analyzing the dynamics of delta, gamma and vega for a straddle position
-    Taylor series expansions and the use of Greeks to conduct P/L decomposition
-    Case Study: Identifying price and volatility views using P/L decomposition

207: Basis Risk Management and Derivatives in Energy Markets

-    Types of basis risk
-    Managing basis risk with basis swaps
-    Case study: Managing NYMEX/ICE basis risk with OTC basis swaps
-    Hedging with futures and basis swaps
-    Understanding and using correlation in valuation and risk measurement.
-    Optimal hedge ratio: Calculations, uses and limitations (NEW)
-    Case study: Spread option valuation and Greeks
-    IAS 39/IFRS 9 and Hedge Effectiveness. Ex-ante vs. Ex-post Tests.
-    Managing basis risk with Exchange of Futures for Physical (EFP) – (NEW)

208: Integrated market risk management case study (NEW)

-    Market Risk metrics: Review of VaR methodologies.
-    Excel case study: Comparative Analysis of VaR methodologies for sample portfolio
-    VaR for option portfolios using simulation vs. delta-normal method
-    Hedging and Risk calculations for portfolios with basis exposures with futures, swaps and basis swaps
-    Best hedges and trade risk profiles

Course Wrap


DR CARLOS BLANCO is an expert in energy, commodity, and financial risk management and modeling. He has been a faculty member of Mennta Energy Solutions 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).


“The course was very informative.  I liked that we spent the time to go through the building blocks before diving into more complicated examples.  I also liked the hands-on method of engaging the material in excel.” A.M., Elbow River Marketing

“DPH2 picked up where DPH1 left off with the application models, trading strategies and real world (simplified) Excel examples. Excellent class!” U.D., Shell

“The instructor was extremely knowledgeable and the materials/tools will be useful for years to come in my organization!” S.H., Imperial Irrigation

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

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Mennta Energy Solutions (formerly The Oxford Princeton Programme, Inc.) is not affiliated with Princeton University, Oxford University, or Oxford University Press.