Hands-on training course on modelling and pricing of energy and commodity derivatives
Course description
Agenda
Who should attend
Prerequisites
Course fee
Date & venue
How to apply
Course description
Energy and commodity markets have been developing rapidly in recent years. A complex interplay between physical supply and demand patterns and financial investment has emerged. The skills to analyse energy and commodity markets and evaluate associated derivatives are in high demand. They represent an essential building block for a successful risk management operation both for physical market participants and financial institutions seeking for new trading and investment opportunities. Furthermore, fair value accounting and hedge accounting for complex energy and commodity derivatives compliant with the International Accounting Standards (IFRS) and others requires a high level of quantitative skills.
The training course comes in two parts, each taking one day.
The first part of the course will provide attendees with significant insight into the characteristics and dynamics of the underlying physical and financial markets. Thus prepared, the attendees will be ready to grasp the specific know-how indispensable to successfully master the challenges in modelling and pricing basic energy and commodity derivatives. Industry-standard modelling and pricing skills are developed in an efficient hands-on training. The attendees work through case studies that closely follow the essential tasks and workflows given in practice.
The second part introduces state-of-the-art modelling and pricing approaches with corresponding numerical schemes that are appropriate even for highly complex derivatives structures. For example, these include derivatives on underlying spreads or multi-commodity baskets and specific swing optionalities. Model validation and selection techniques are discussed in detail. The hands-on training features case studies designed to apply the sophisticated approaches and methodologies presented in this course part.
The two course parts may be attended separately or in combination. To add more flexibility, the different course sections can be arranged individually according to previous knowledge. In addition, we will be happy to tailor and / or structure course contents such as coverage of specific markets or derivatives according to your needs
Agenda
Day 1: Modelling and Pricing of Energy and Commodity Derivatives I
- Market structure and regulation
- Physical market participants and supply chain
- Physical trade channels and transport
- Financial market participants
- Investment vehicles
- Trading instruments and marketplaces
- Regulatory aspects
- Market dynamics
- Price drivers and price formation in spot and futures / forward markets
- Price drivers and price formation in spot and futures / forward markets
- Market information
- Sources
- Availability and research
- Interpretation
Session II: BASIC price and derivatives modelling
- Modelling of price processes: Main challenges
- Price mean reversion
- Convenience yield dynamics
- Seasonal price patterns
- Price jumps and spikes
- Volatility dynamics
- Overview of modelling approaches (real world and risk-neutral)
- Spot-convenience yield models
- Forward price models
- Market models
- Mathematical background
- Mean reversion
- Stochastic convenience yield
- Seasonality
- Jump diffusion
- Market data pre-processing
- Data quality
- Outlier removal
- Data amendment
- Model calibration
Comparison of calibration techniques based on:- Historical market data
- Current market data (implied calibration)
- Derivatives pricing
- Futures, forwards and swaps
- Vanilla call and put options
- Exotic options with European payoff structures
Session III: Hands-on - price and derivatives modelling I
- Case Study I: Future curve modelling
Model calibration and validation for the commodity groups:- Crude oil
- Natural gas
- Agricultural commodities
- Base metals
- Case Study II: Volatility surfaces and exotic options
- Modelling and validation of implied volatility surfaces
- Pricing of exotic options on futures with European payoff structures
Session I: Energy, metal and agricultural commodity markets
Day 2: Modelling and Pricing of Energy and Commodity Derivatives II
- Mathematical background
- Stochastic volatility
- Complex / combined (stochastic volatility and jump diffusion etc.)
- Regime switching and spikes
- Correlated forward curve dynamics
- Market models
- Multi-commodity extensions
- Practical numerical schemes for calibration and pricing
- Binomial / trinomial trees
- PDE solvers
- Monte Carlo schemes
- Fast Fourier Transform
- Derivatives pricing
- Barrier options
- Spread options
- Basket options
- Swing options
- Real options (generation assets)
- Model validation and selection
Validation and selection criteria for practical modelling approaches:- Feasibility and accuracy for intended purposes
- Sensitivity to key features in market dynamics
- Robustness
- etc.
Session V: Hands-on - price and derivatives modelling II
- Case Study III: Option pricing and model validation / selection
- Model calibration
- Pricing of barrier, spread and basket options
- Model validation and selection
- Case Study IV: Swing option pricing in power markets and model validation
- Model calibration using European power market data
- Swing option pricing
- Model validation
Session IV: ADVANCED price and derivatives modelling
Prerequisites
Basic economic and quantitative knowledge in financial derivatives is required. Experience in MS Excel / VBA programming is beneficial.
Course fee
The course fee per delegate is 850 EUR for one day or 1,600 EUR for two days. For courses held in Hong Kong, the fees are USD 950 and USD 1,800, respectively. For each delegate, the course fee includes lunch and course material (presentation and model implementations used for the case studies). Upon completion of the course each participant will receive a Certification of Attendance.
The individual extension of standard course contents e.g. by including modelling exercises for specific complex derivatives might lead to considerable additional efforts on our side. Such efforts will be compensated for on a case-by-case basis.
As far as applicable for in-house courses, travel expenses for two trainers depending on costs for local accommodation and transport from / to our nearest office will be determined and charged on an individual basis.
Group booking discounts:
- 3 delegates - 15% discount
- 4 or more delegates - 20% discount
Please note that a minimum of two delegates is required if the course is to be conducted in-house.
Date & venue
The course can be conducted in-house or on our premises in Frankfurt, Germany, London, UK or Hong Kong, China. We will arrange a mutually convenient date.
How to apply
Europe: for courses to be held in the European Union, please contact us at info@d-fine.de or call +49 69 90737 0. Alternatively, fax the completed registration form to +49 69 90737 200.
Hong Kong: please contact us at info@d-fine.hk or call +852 3711 5800. Or download the registration form, complete it, and fax it to +852 2544 9989.
Who should attend
Quantitative modellers, financial engineers, risk managers, portfolio managers, traders, accountants and anyone who seeks to gain a practical understanding of best-practice modelling and pricing approaches for energy and commodity derivatives.
