Quantitative analysis
Energy Risk at 30: Learning from the past
Energy Risk looks back at the seminal events and developments that have shaped today’s energy markets
Quant Ideas: market-making, risk and information in commodities
Persistent low liquidity in commodity markets is the result of the fundamental interaction of high volatility and noisy data sets. This fact has profound implications for the theory and practice of risk management in commodity markets
Quant ideas: Strategic versus tactical risk management
Strategic or enterprise risk management has long been seen as something of a Holy Grail for risk managers. However, the susceptibility of enterprise risk tools to poor quality data means the whole effort is likely to be misguided, argues Krzysztof…
Internal transfer price optimisation for integrated energy firms
By selecting appropriate levels for the internal transfer prices of commodities and risk, an energy company can influence the alignment of its overall risk-return profile with its strategic objectives. Here, Henrik Specht, Sergey Zykov, Tilman Huhne and…
Video: Enron 'best' and 'lowest' career moment, says Kaminski
Vincent Kaminski opines on topics including the "best" and "lowest" moment of his career, financial regulation, oil fundamentals and European energy markets in a wide-ranging interview filmed at Energy Risk Summit USA
Cutting Edge: Co-simulation of risk factors in power markets
In this article, Jialin Zhao and Sang Baum Kang propose a simple but realistic model to co-simulate the time series of three risk factors: temperature, electricity load and prices. In addition, the authors provide load-serving entities with a…
Quant ideas: Do we need realistic models?
It is often assumed that realistic models are a prerequisite for successful risk management, but this is not necessarily true. While using any model blindly can be extremely dangerous, simple Black-Scholes or Ornstein-Uhlenbeck models are more than…
Anatomy of a model: Valuation of physical assets
This paper dissects the layers of valuation models for physical assets. While their joint functioning is crucial, the integrity of the layers is not always well understood. Rossen Roussev warns of the trend to over-engineer the parts and mis-model the…
Quant ideas: Building a better LNG forward curve
A robust suite of liquefied natural gas (LNG) forward curves is an important prerequisite for the proper valuation and risk measurement of LNG portfolios. This article provides an overview of effective methods for constructing long-term LNG forward price…
Cutting edge: Kriging smooth energy futures curves
This paper applies the method of kriging from geostatistics to extract smooth curves from energy futures prices. How the method can interpolate market prices is demonstrated, both for contracts with fixed delivery times and for delivery over a period,…
Battery storage to transform power market models
The development of economical battery storage could rewrite the rules of electricity trading and create a need for newer and more sophisticated models, say market participants
Quant ideas: Liquidity in commodity risk management
Limited liquidity is a problem that arises frequently when managing large assets, such as power plants or storage facilities. Krzysztof Wolyniec shows how standard financial models tend to overstate the cashflows of these facilities and explains how…
Energy traders ignore legal risk at their peril
Legal risk is a challenge for energy trading organisations, as it eludes traditional quantitative risk management techniques. But its effects can be just as disastrous as other risk management failures, and sometimes worse, warns Vincent Kaminski
Energy trading firms may rue the decline of quants
Quant finance transformed energy markets, but has been met with a lack of enthusiasm and investment since the financial crisis. That is a shame, say industry veterans, who point to a number of areas that could benefit from a renewed focus on quantitative…
Quants: how they shaped the modern energy market
Nowadays, quants are well established in energy trading. But the original introduction of quantitative techniques to the industry was far from straightforward, with a lot of hard work involved in adapting financial market models to the energy arena…
Quant energy models need greater emphasis on fundamentals
Boom in shale oil and gas extraction, and growth in renewables underline importance of reflecting fundamental factors in quant models, argue experts
Applied risk management series: Active VAR management
In this article, Carlos Blanco introduces a set of tools to assist traders and risk managers in actively managing the value-at-risk of energy derivatives portfolios
Asia Commodity Research House of the Year: SG CIB
Accurate forecasting and insightful analysis prove a winning formula for SG CIB
Is risk modelling keeping up with the energy market?
Lean times in energy and commodity derivatives trading have caused a cutback in the amount of time and resources spent on energy risk modelling – a worrying trend that could leave firms unprepared for future market challenges, argue some experts. Mark…
A new direction for weather derivatives
Specialised quanto products are now driving demand in the weather derivatives markets. Alex Davis looks at why this is the case, and how improvements in data provision are making this possible
Cutting edge: Modelling the correlation function in the crude-oil futures market
Energy market participants often require the computation of coefficients of correlation in a multi-asset portfolio. Addressing crude oil futures contracts, Ehud Ronn proposes and implements a simple procedure to reduce the cross-maturity correlations in…