Applied risk management series: modelling spreads in energy markets

Implications for valuation and risk management of spread options

Modelling spreads in energy markets - Applied risk management series

Spread relationships such as production, calendar and geographical spreads are critical drivers of physical market trading strategies and asset-hedging activities. However, despite their crucial role in most energy portfolios, modelling energy spreads for derivatives valuation and risk management purposes is probably one of the most overlooked and under-researched areas of energy finance.
In this article, we first describe the main types of energy spreads, then introduce the most popular

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