Real Options and Simulation in Energy Markets - DPH4 

CPE Credits Awarded: 16
Categories: Trading, Derivatives, Hedging and Risk Management, Global Association of Risk Professionals (GARP) Approved Course

Date Register by Date Duration Venue Price Register
01 Mar 2017 27 Feb 2017 2 Days Doubletree by Hilton London - West End Country: gb
£ (GBP)2,350.00+20%VAT
13 Sep 2017 11 Aug 2017 2 Days Houston, TX Country: us
$ (USD)2,471.00
07 Dec 2017 3 Nov 2017 2 Days London, UK Country: gb
£ (GBP)2,350.00+20%VAT

Gold Course

This course is an advanced course for energy practitioners interested in enhancing their applied knowledge of best practices in valuation, hedging and risk management of long term contracts and physical assets. This highly interactive workshop uses practical case studies, Excel exercises and group discussions to reinforce the concepts presented in the lectures.

The course introduces the models and strategies used to value, hedge and manage the risk of derivatives and physical assets in leading energy trading organizations. Delegates learn about the practical applications of the models and strategies from the point of view of the users of those models, not the quantitative developers.

The course explores the embedded optionality and trading strategies to optimize storage, transportation (ground and marine) assets and long term contracts in gas, power and oil markets. Cross commodity spread strategies are explored in the context of power generation and oil refinery operations. The course also covers the valuation, hedging and optimization of natural gas, LNG and refined product storage strategies in contango and backwardated markets.

Delegates learn how to apply Monte Carlo simulation (stochastic forward curve models, Least-Squares Monte Carlo) and binomial/trinomial trees for physical asset valuation and hedging. Case studies show how to incorporate operational constraints in the analysis.

Recommended prerequisites: DPH1, DPH2, DPH3 (optional), PRM and NAGP

Please note: a laptop and Excel version 2007 or later is required in order to engage in market data.

GARP rgbThe Oxford Princeton Programme is registered with GARP as an Approved Provider of Continuing Professional Development (CPD) credits. The Oxford Princeton Programme has determined that this program qualifies for 16 GARP CPD credit hours. If you are a Certified FRM or ERP, please record this activity in your Credit Tracker at

- Market risk managers
- Quantitative analysts
- Asset-based traders
- Commercial analytics teams
- Structured product teams
- Fundamental analysts
- Chief risk officers
- Middle office personnel
- Credit risk managers
- Risk consultants
- IT specialists

Day I

401: Valuation and Hedging of Physical assets and Long Term Contracts as real options

-    Types of real options:  volume, timing, cross-commodity and location
-    Differences between real options vs. standard options
-    Intrinsic vs. extrinsic value of real options
-    Optimization and re-optimization: Rolling intrinsic and spot-based trading
-    Position management and monetization Strategies
-    Risk-equivalent position mapping of real options

402: Energy Price Behaviour: Overview of forward curve models
-    Forward curve behavior in oil, gas and power markets
-    Review of spot price models: Geometric Brownian Motion (GBM), GBM with mean reversion and mean reverting jump diffusion (MRJD)
-    Multi-factor and multi-commodity models: Structured Monte Carlo (Cholesky-based) vs. Principal component analysis (PCA).
-    Excel exercises with PCA and structured Monte Carlo Simulation.
-    Case study: Forward curve simulation and risk measurement for swap portfolios
-    Seasonality and Forward Curve Simulations

402: Transportation and geographical spreads

-    Pipeline and Transportation Options
-    Understanding locational basis relationships in gas and power markets
-    Using basis swaps to fix prices; hedge transportation and transmission
-    Case Study: To flow or not to flow: Natural gas locational basis trading
-    Case Study: LNG trading and locational arbitrage
-    Firm capacity, Firm Recallable Capacity, and Interruptible services.
-    Congestion Revenue Rights (CRR) and Financial Transmission Rights (FTR)

403: Storage and Time Spreads

-    Natural Gas Storage: Time Spreads and Trading Strategies
-    Optimization in Contango and Backwardated markets
-    Intrinsic value calculation of Storage using Excel’s Solver
-    Extrinsic value calculation and strip of spread options
-    Park-and-Loan Services
-    Case study: LNG storage and optimal sendout plans
-    Case study: Storage hedging and operational risk

Day II

404: Power Generation and Refineries as a Real Option

-    Real options and production assets
-    Optionality in power generation
-    Spark Spreads and Heat Rate Forwards and Options
-    Closed-form solutions: Generation as a strip of spread options
-    Simulating the spark spread with 1-factor and 2-factor models
-    Earnings at Risk for a power plant under different hedging strategies
-    Refineries and crack spreads

405: Volumetric Risk and retail contracts

-    Swing and Gamma risk in retail contracts
-    Incorporating client demand strategies
-    Hedging retail contracts
-    Simulation of weather and valuation of weather derivatives
-    Case study: Pricing HDD and CDD options
-    Simulation of load and price and estimation of P/L distributions from retail contracts

407: Backwards induction methods and early exercise decisions
-    Dispatch rules and plant optimization
-    Introduction to Least-squares Monte Carlo
-    Case study: Pricing an American option with Longstaff-Schwartz method
-    Binomial and trinomial tress
-    Forest of trees and swing contracts
-    Case study: Swing contract valuation and hedging

408: Market, Credit and Operational Risk Policies and Metrics for Physical Assets

-    Market risk metrics for assets: VaR vs. other ‘at-risk’ metrics such as CFaR, GMaR and EaR
-    Case study: Gross earnings at risk for a power plant
-    Credit risk and exposure measurement: Potential future exposures (PFE)
-    Operational risk in assets
-    Case study: Introducing outages and pricing outage insurance in a simulation framework
-    Case study: Termination events and cancellation options in long term LNG contracts


DR CARLOS BLANCO is an expert in energy, commodity, and financial risk management and modeling. He has been a faculty member of the Oxford Princeton Programme since 2004, where he teaches the Derivatives Pricing Hedging and Risk Management Certificate Programme as well as courses on Counterparty Risk Management and Gas and Power Trading and Risk Management.

He has published over 100 articles on financial, energy, and commodity trading, hedging and risk management. He is the founder and managing director of a risk management advisory firm with clients in North America, Europe, Africa and Asia. Carlos is a former VP, Risk Solutions at Financial Engineering Associates. There, he worked over six years as an essential contributor in the development of the energy derivatives valuation and risk management models of the firm. He also provided leading-edge risk advisory and educational services to over 500 energy and commodity trading firms and financial institutions worldwide. He also managed the world-class support and professional services department within the firm. Prior to FEA, Carlos worked for a hedge fund in the Midwest and an asset management firm in Madrid, Spain. He is a former regional director of the Professional Risk Managers’ International Association (PRMIA).


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