The XVA challenges energy traders face in a complicated and volatile market
Despite being a multitrillion-dollar global industry, energy markets have yet to adopt industry-standard, widely accepted methods for valuation adjustment (XVA) pricing, model analytics and risk management. As the energy sector has recently experienced extreme fluctuations in price and other dynamics due, in part, to Covid-19 pandemic-related and geopolitical effects, in this paper we take a look at some of the challenges energy traders face when seeking to apply XVAs to their derivatives transactions.
Download a copy of this paper for cutting-edge insight into key factors, including:
- Why applying XVAs in the energy markets is significantly different than traditional asset classes
- Nuances of energy markets, including client credit profiles and credit data sparsity
- Unique factors, such as physical delivery, weather, seasonality and storage
- How volatility and frequent boom-and-bust cycles can mean outsized instability of XVAs
- The impact of curve seasonality
- How the transition to renewable energy increases data complexity for XVAs
- Cloud computing as a key differentiator.
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