Course Summary

This course provides an overview of energy derivatives and physical markets as well as the main instruments traded in those markets. We will explore the main differences between physical and paper transactions and also between exchange-traded and OTC products. We will show how to trade and understand the risk of futures, forwards and swaps to mitigate market risk. The course will also provide an overview of option contracts and hedging and speculation strategies using options and simple structures. We will cover strategic and tactical issues around hedging with Energy Derivatives and will explore alternative hedging alternatives for producers and end-users. The course will introduce exotic options, as well as options on spreads and multiple assets and the use of those options in hedging programmes.

This highly interactive workshop uses practical case studies, Excel exercises and group discussions to reinforce the concepts presented in the lectures.

Please note: a laptop and up-to-date version of Microsoft Excel software is required in order to engage in market data (Excel 2003 or above).

8 CPE credits per training day awarded for this course.

Who Should Attend?

• Market risk managers
• Energy traders
• Trading managers
• End-users of derivatives in corporations
• Credit risk analysts
• Risk consultants
• Risk and audit committee members
• CFOs and treasury managers
• Finance department personnel
• Compliance managers
• Middle and back-office personnel
• Treasurers and treasury analysts
• Chief risk officers

Course Contents

Overview of Energy Physical and Financial Markets

• Overview of energy markets, risks and players
• Why are energy markets different?
• Risk dimensions in energy markets: price, basis, volume, regulation, weather, operations.
• Exchange-based and OTC trading
• Impact of physical delivery
• Main energy organized exchanges
• The mark-to-market process
• Clearing, collateral and margin issues
• Case study: Energy Trading in Nymex Clearport and ICE

Spot Prices and Forward Curves in Energy Markets

• Spot (cash) prices: main characteristics
• Forward price curves: contango and backwardation
• What does the forward curve tell us? Case study: Analysis of the Backwardation Index for WTI
• Arbitrage relations and forward curves
• Case study: Brent vs. WTI differential drivers
• Impact of storability and transportation
• Building forward curves in illiquid markets
• Case study: building forward curves for mark-to-market and risk analysis

Using Energy Futures, Forwards, Swaps

• Energy forward and futures contracts
• Linear vs. non-linear payoffs
• Hedging with futures. buyers and sellers. long or short?
• Hedging with forward and swaps
• Index swaps and fixed for floating swaps
• Exchange for Physical (EFP) and Exchange for Swaps (EFS)
• Valuation of forward contracts and swaps in Excel

Using Energy Options: Hedging and Speculation

• Review of options types: calls, puts
• Buying and selling options: understanding option payoffs
• Why use options?
• What are the main drivers of option premiums?
• Individual options vs. strips of options: examples
• Options on forwards and options on swaps (swaptions)
• Case study: Using exotic swaps with embedded options for hedging (and speculation)

Strategic and Tactical Issues around Hedging with Energy Derivatives

• Designing and effective hedging program
• Understanding operations and entity-wide objectives
• Evaluating the impact of inaction vs. hedging. Payoffs under different scenarios.
• Avoiding 'suitability risk'. Evaluating the use of derivatives to control market risk and linking use to entity-wide and activity-level objectives.
• Defining risk management activities and terms.
• Assessing the appropriateness of specified activities and strategies relating to the use of derivatives
• Dealing with 'Monday-morning quarterbacks': Establishing procedures for obtaining, monitoring and communicating risk management activities and their results.
• Case study: Hedging alternatives for an oil producer

Exotic Options

• Average price (Asian) options
• Barrier options: knock-outs and kick-ins
• Digital (binary) options
• Compound options
• Case study: Uses and misuses of exotic options in hedging programmes

Options on Multiple Assets

• Drivers of premiums on options with more than one underlying
• Spread options: Case study: Options on the spark spread
• Basket options: Case study: Options on crack spreads
• Best-of options: Case study: Pipeline transportation with multiple locations
• Swaptions: swaps as baskets of forward contracts

Strategies with Options

• Behavior of spreads under extreme market conditions. Case study: Hurricane Katrina and fuel price behavior in key pricing regions in the United States.
• Case study: Hedging refinery margins with a crack spread swap. Illustration and revenue payoff before and after hedging.
• Case study: Jet fuel hedging strategies by airlines.

Certificate in Derivatives Pricing, Hedging and Risk Management The course described on this page is a module within the Certificate in Derivatives Pricing, Hedging and Risk Management. Candidates for this certification program need to successfully complete three courses in this order: Energy Derivatives Markets, Instruments and Hedging (DPH1) Energy Derivatives Pricing, Hedging and Risk Management (DPH2) Advanced Energy Derivatives Pricing, Hedging and Risk Management (DPH3) Candidates have three (3) years to complete all three courses as well as accompanying exams. Each course is offered at least once a year. Once a course is completed, an exam paper will be mailed to the candidate and must be completed and submitted within three (3) months. A brief paper is to be completed at the end of the final course that will enable candidates to apply some of the concepts presented in an area that would benefit them in their day-to-day activities (final topic to be chosen in consultation with the Course Director). Pre-testing is available for those who might be able to place out of DPH1 and/or DPH2. Delegates who have already successfully completed Derivatives Pricing, Hedging and Risk Management (TPD) in 2007 or 2008, are eligible to enroll into DPH3 (no need to take DPH1 or DPH2). Upon successful completion, a certificate and accompanying token of achievement is presented to the recipient. Certificate Enrollment fee: $450 Please Contact us to enrol or for further information.

The following course(s) are available..

Date / No of days	Location	Fee: Course only	Fee: + accommodation	Code
26 - 27 Apr 2010 (2)	Houston, TX	USD$3100	- n/a -	#DPH1042610
10 - 11 May 2010 (2)	Calgary, AB	USD$3100 +5% GST	- n/a -	#DPH1051010
7 - 8 Jun 2010 (2)	London, UK	GBP£2500 + 17.5% VAT	- n/a -	DPH1\AGBR10
14 - 15 Jun 2010 (2)	Anaheim, CA	USD$3100	- n/a -	#DPH1061410
20 - 21 Sep 2010 (2)	Calgary, AB	USD$3100 +5% GST	- n/a -	#DPH1092010
15 - 16 Nov 2010 (2)	Houston, TX	USD$3100	- n/a -	#DPH1111510