Delta Energy Solution AG Switzerland

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Quantitative Risk Management in Electricity Trade

A seminar addresses trading, procurement, sales and risk controlling departments.

In co-operation with Delta Energy Solution AG, the Institute for Operations Research and Computational Finance of the University of St. Gallen holds a full-day seminar on Quantitative Risk Management in Frankfurt on December 10, 2009. The seminar addresses the trading, procurement, sales and risk controlling departments of energy suppliers.

The success of management and trading strategies applied by energy suppliers is essentially determined by the price dynamism in the electricity trading markets. The participants of this seminar will learn about the significance of electricity price dynamism for efficient risk management. They will develop an understanding on how to anticipate the price dynamism in line with market development, differentiate systematic from unsystematic price developments and identify risk/return structures of management and hedging strategies.

This know-how will be presented in four modules that build on each other:

• Module I: Hourly Price Forward Curves (HPFCs) for EEX Phelix and Swissix

Hourly forward prices cannot be directly observed in the electricity trading markets. Taking account of no-arbitrage bounds, they have to be synthesized for correctly assessing structured products. In the production of hourly price forward curves (HPFCs), major leeway exists in how the shapes are defined for accurately representing seasonal effects. As a function of the shapes defined, the market prices of schedules and structured products will differ. The seminar presents a set of rules for assessing the quality of HPFCs for the two market areas of EEX (Germany/Austria and Switzerland) and for ranking them.

• Module II: Stochastic price models for EEX Phelix and Swissix

The price risks of open positions are characterized by P&L distributions. In order to quantify them, the price dynamism has to be represented by means of stochastic price models. The module presents the state of the art of price models for spot and futures markets and their calibration methods. Likewise, pricing signals will be discussed that permit the differentiation of structural changes from unsystematic fluctuations of prices on the electricity markets.

• Module III: Management of market price risks

At the strategic level, decisions are made on the basis of limit systems. As a rule, they are valid for several years. The structures of the conditions imposed by them may be highly diverse and define the scope for subsequent hedging strategies. Different hedging strategies and their effectiveness are compared. To ensure the sustained efficiency of limit systems, it is necessary to take account of the effectiveness of hedging strategies on the one hand and the opportunity costs related to the limits on the other hand. The seminar highlights the key parameters that have to be considered in designing limit systems.

• Module IV: Application in the spot and futures markets

The price dynamism observed in the spot and futures markets shows great differences in electricity trade as electricity cannot be stored. Representative case studies demonstrate the impact of different HPFCs and price process parameters on the assessment, risk measurement and hedging of open position in the spot and futures markets in detail. The hedging concepts cover both standardized products and structured products with or without options.

For further useful information on this seminar, please see the agenda and the registration form.