energy book vl . 0 vince :
i have rewritten the paragragh for chapter 3 . please read and return your
comments .
thanks ,
grant .
- - - - - - - - - - - - - - - - - - - - - - forwarded by grant masson / hou / ect on 02 / 16 / 2000 02 : 48
pm - - - - - - - - - - - - - - - - - - - - - - - - - - -
chris strickland on 02 / 15 / 2000 05 : 28 : 42 am
to : grant masson @ ect , vkamins @ ect
cc :
subject : energy book
hi grant ,
hope all is well with you . i trust you got my message via the voicemail
that ileft with vince late friday afternoon about my inability to travel -
i ' m trying to rearrange my trip for a couple of week ' s time when my ear has
cleared up , and i look forward to meeting with you one day .
i wrote to vince last week asking for a favour , but i ' m not sure ifhe is
there in houston . i know that you guys are probably very busy but i was
wondering if you can write a few sentences for me . i ' m sending out some
sample chapters to the people who responded positively ( all of them ! ) to my
request for some feedback on the book . chapter 1 has an ' overview ' of the
book with just a couple of sentences on each chapter . could you please
write a sentence or two for your chapter ?
i ' m including what i have already written ( although i think it has changed
slightly from this version ) so that you can see the style .
many thanks and best regards .
chris .
2 overview of this book
this book aims to provide an in - depth understanding of the pricing and risk
management of energy derivatives . in the remainder of this chapter we give
an overview of the fundamental principals needed to model and price energy
assets , and which underlie the rest of the book . as well as introducing
the techniques that underlie the black - scholes modelling framework we
discuss the numerical techniques of trinomial trees and monte carlo
simulation for derivative pricing which are used extensively later in the
book .
in chapter 2 we analyse spot energy prices . apart from describing
empirical prices we propose a number of processes that can be used to model
the prices . we look at the well - know process of gbm as well as mean
reversion , stochastic volatility and jump processes , discussing each , and
showing how they can be simulated and their parameters estimated .
chapter 3 , written by vince kaminski , grant masson and ronnie chahal of
enron corporation , discusses volatility estimation in energy commodity
markets . this chapter builds on the previous one . it examines in detail
the methods , merits and pitfalls of the volatility estimation process
assuming different pricing models introduced in chapter 2 . examples
from crude , gas , and electricity markets are used to illustrate the
technical and interpretative aspects of calculating volatility .
chapter 4 examines forward curves in the energy markets . although such
curves are well understood and straight forward in the world debt markets
the difficulty of storage in many energy markets leads to less well defined
curves . what we do in this chapter
chapter 5 presents an overview of the common and not - so - common derivative
structures in the energy markets and discusses their uses . examples of
products analysed in this chapter include a variety of swaps , caps , floors
and collars , as well as energy swaptions , compound options , asian ( or
average rate ) options , barriers , lookbacks , and ladder options .
chapter 6 investigates single and multi - factor models of the energy spot
price and the pricing of some standard energy derivatives . closed form
solutions for forward prices , forward volatilities , and european option
prices are derived and presented for all the models in this chapter
including a three factor stochastic convenience yield and interest rate
model with jumps .
chapter 7 shows how the prices of path dependent and american style options
can be evaluated for the models in chapter 6 . simulation schemes are
developed for the evaluation of european style options and applied to a
variety of path dependent options . in order to price options which
incorporate early exercise opportunities , a trinomial tree scheme is
developed . this tree is built to be consistent with the observed forward
curve and can be used to price exotic as well as standard american style
options .
chapter 8 develops a new methodology for valuing energy options based on
modelling the market observed forward curve . the approach results in a
multi - factor model that is able to capture realistically the evolution of a
wide range of energy forward curves and where the user defined volatility
structures can be of an extremely general form . closed - form solutions are
developed for pricing standard european options and efficient monte carlo
schemes for exotic options . the chapter finishes with a discussion of the
valuation of american style options .
chapter 9 focuses on the risk management of energy derivative positions .
in this chapter we discuss the management of price risk for institutions
that sell options or other derivatives to a client and who is then faced
with the problem of managing the risk through time . we begin with delta
hedging a portfolio containing derivatives and look at extensions to gamma
hedging - using the models from chapters 5 and 7 . the general model of
chapter 7 ideally suited to multi - factor hedging and this is also
discussed .
chapter 10 looks at the key risk - management concept of value at risk
applied to portfolios containing energy derivative portfolios . after
discussing the concept of the measure , we look at how the key inputs
( volatilities , covariances , correlations , etc ) can be estimated . we then
compare the fours major methodologies for computing var ; delta ,
delta - gamma , historical simulation and monte - carlo simulation . finally , we
look at testing the var estimates for various underlying energy market
variables .
energy book vl . 0
vince :
i have rewritten the paragragh for chapter 3 . please read and return your
comments .
thanks ,
grant .
- - - - - - - - - - - - - - - - - - - - - - forwarded by grant masson / hou / ect on 02 / 16 / 2000 02 : 48
pm - - - - - - - - - - - - - - - - - - - - - - - - - - -
chris strickland on 02 / 15 / 2000 05 : 28 : 42 am
to : grant masson @ ect , vkamins @ ect
cc :
subject : energy book
hi grant ,
hope all is well with you . i trust you got my message via the voicemail
that ileft with vince late friday afternoon about my inability to travel -
i ' m trying to rearrange my trip for a couple of week ' s time when my ear has
cleared up , and i look forward to meeting with you one day .
i wrote to vince last week asking for a favour , but i ' m not sure ifhe is
there in houston . i know that you guys are probably very busy but i was
wondering if you can write a few sentences for me . i ' m sending out some
sample chapters to the people who responded positively ( all of them ! ) to my
request for some feedback on the book . chapter 1 has an ' overview ' of the
book with just a couple of sentences on each chapter . could you please
write a sentence or two for your chapter ?
i ' m including what i have already written ( although i think it has changed
slightly from this version ) so that you can see the style .
many thanks and best regards .
chris .
2 overview of this book
this book aims to provide an in - depth understanding of the pricing and risk
management of energy derivatives . in the remainder of this chapter we give
an overview of the fundamental principals needed to model and price energy
assets , and which underlie the rest of the book . as well as introducing
the techniques that underlie the black - scholes modelling framework we
discuss the numerical techniques of trinomial trees and monte carlo
simulation for derivative pricing which are used extensively later in the
book .
in chapter 2 we analyse spot energy prices . apart from describing
empirical prices we propose a number of processes that can be used to model
the prices . we look at the well - know process of gbm as well as mean
reversion , stochastic volatility and jump processes , discussing each , and
showing how they can be simulated and their parameters estimated .
chapter 3 , written by vince kaminski , grant masson and ronnie chahal of
enron corporation , discusses volatility estimation in energy commodity
markets . this chapter builds on the previous one . it examines in detail
the methods , merits and pitfalls of the volatility estimation process
assuming different pricing models introduced in chapter 2 . examples
from crude , gas , and electricity markets are used to illustrate the
technical and interpretative aspects of calculating volatility .
chapter 4 examines forward curves in the energy markets . although such
curves are well understood and straight forward in the world debt markets
the difficulty of storage in many energy markets leads to less well defined
curves . what we do in this chapter
chapter 5 presents an overview of the common and not - so - common derivative
structures in the energy markets and discusses their uses . examples of
products analysed in this chapter include a variety of swaps , caps , floors
and collars , as well as energy swaptions , compound options , asian ( or
average rate ) options , barriers , lookbacks , and ladder options .
chapter 6 investigates single and multi - factor models of the energy spot
price and the pricing of some standard energy derivatives . closed form
solutions for forward prices , forward volatilities , and european option
prices are derived and presented for all the models in this chapter
including a three factor stochastic convenience yield and interest rate
model with jumps .
chapter 7 shows how the prices of path dependent and american style options
can be evaluated for the models in chapter 6 . simulation schemes are
developed for the evaluation of european style options and applied to a
variety of path dependent options . in order to price options which
incorporate early exercise opportunities , a trinomial tree scheme is
developed . this tree is built to be consistent with the observed forward
curve and can be used to price exotic as well as standard american style
options .
chapter 8 develops a new methodology for valuing energy options based on
modelling the market observed forward curve . the approach results in a
multi - factor model that is able to capture realistically the evolution of a
wide range of energy forward curves and where the user defined volatility
structures can be of an extremely general form . closed - form solutions are
developed for pricing standard european options and efficient monte carlo
schemes for exotic options . the chapter finishes with a discussion of the
valuation of american style options .
chapter 9 focuses on the risk management of energy derivative positions .
in this chapter we discuss the management of price risk for institutions
that sell options or other derivatives to a client and who is then faced
with the problem of managing the risk through time . we begin with delta
hedging a portfolio containing derivatives and look at extensions to gamma
hedging - using the models from chapters 5 and 7 . the general model of
chapter 7 ideally suited to multi - factor hedging and this is also
discussed .
chapter 10 looks at the key risk - management concept of value at risk
applied to portfolios containing energy derivative portfolios . after
discussing the concept of the measure , we look at how the key inputs
( volatilities , covariances , correlations , etc ) can be estimated . we then
compare the fours major methodologies for computing var ; delta ,
delta - gamma , historical simulation and monte - carlo simulation . finally , we
look at testing the var estimates for various underlying energy market
variables .