Technical paper/Commodities
Purchase timing
Managing purchase timing risk is a constant issue for wholesale power buyers. Pavel Diko reviews products that reduce this risk, proposes a lookback option that can eliminate it completely and outlines a hedging strategy for the option writer
Gas portfolio and transport optimisation
Deciding which instruments to use to balance gas flows is not easy. Gido Brouns and Alexander Boogert discuss how to achieve gas portfolio optimisation by integrating this with the various gas transportation options available
Trading opportunities in the Nymex frac spread
This article examines the long-term relationship between natural gas and propane futures. Using a technique known as 'frac' spread trading, Mbodja Mougoué and Steven Slack illustrate the opportunities that can occur from using the price fluctuations in…
A fair-value enterprise
Cutting Edge: Liability management
Commodity options optimised
In 2005, John Crosby introduced a very flexible framework in which it is possible to price derivatives, including exotics, on almost any underlying commodity. In this article, he shows how pricing can be done approximately 30 to 400 times faster than the…
Hedging weather exposure
Volumetric weather risk is usually levered by the commodity price, resulting in cross-commodity exposure known as a quanto. Hedging such exposure with quanto instruments is costly. Victor Dvortsov suggests a simple strategy that allows efficient hedging…
Calibrating inflation
Cutting Edge: Inflation Models
Nuclear fusion R&D
In 50 years, nuclear fusion may be a major source of energy, but until then extensive research and development is needed. To justify the current and future R&D expenditure, a cost-benefit analysis designed specially for this sector is required. David…
A matter of principal
Developing term structure models can be tricky, as unknown factors and non-observable variables can affect futures prices. But principal components analysis is useful in tackling these problems. Here, Delphine Lautier uses PCA to pin down price movements…
Real-time trading
Rankings 2005
Caring competition
What are the theoretical consequences of restructuring electricity markets on emissions? Here, Benoît Sévi shows that changes in supply and consumption and restructuring for competition has environmental effects, and argues that strong public policies…
Correlated defaults: let's go back to the data
Estimates of asset value correlation are a key element of Merton-style credit portfoliomodels. Many practitioners have access to asset value data for a large universe of listedfirms, so estimation is within reach. Alan Pitts describes a statistical…
An integrated framework for the governance of companies
Cases of insolvencies, losses and internal frauds have been increasing of late. As a result, the question is asked more and more often whether such cases could have been avoided with better governance of companies or a clearer organisational handbook. In…
Constructing an operational event database
Michael Haubenstock of US bank Capital One outlines a framework for an event database, formulated with current US regulatory guidance on the subject in mind. The text is an abstract from The Basel Handbook, which has just been published by Risk Books.
The one-year lag
market graphics
Trading techniques
Rankings 2004
Mark up the scorecard
Sergio Scandizzo and Roberto Setola explore the application of a scorecard approach to the measurement of operational risk, assessing both its reliability as a risk-management tool and the practicalities of its implementation.
Breaking down the model
Brett Humphreys and Andy Dunn outline a method to help energy companies minimise potential model risk and thereby avoid costly errors in valuing deals.
Creating an op risk loss-collection framework
To meet the Basel II advanced measurement requirements and improve op risk management, firms must establish robust loss databases. Ulrich Anders and Jürgen Platz of Dresdner Bank in Frankfurt outline such a framework.