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. Stella Farrington reports

Quantitative analysis revolutionised financial markets in the 1970s and 1980s, but its use in the energy world was limited until the 1990s, when deregulation spread across natural gas and power markets in the US and Europe. As the old order of fixed prices and guaranteed markets came to an end, gas and power companies became exposed to substantial price and volume risk for the first time, rendering risk management an urgent new priority.

Faced with the need to calculate exposures to market