update on ut - enron activities : my conversation with rick causey vince ,
good morning .
as you may know , last thur . enron honored this year ' s recipients of the
enron mba excellence fund scholars at a dinner in austin . in addition to
the three recipients , business school dean may and several of my
colleagues , enron attendees included sally beck , cindy justice , karen
marshall ( newly - appointed coordinator of higher education initiatives for
enron community relations dept . ) and rick causey .
i write you at this time to advise you i had occasion to discuss two
current enron / ut issues with rick :
i . spring 2001 conference participation by jeffrey k . skilling
ii . ut participation in enrontraining activities
per my conversation with rick last thur . , i followed up on that discussion
with an e - mail this morn that touched on those two topics .
i . with respect to the first , i wrote rick this morning that :
1 . we at the ut center for energy finance education and research ( cefer )
are planning a practitioner - industry conference in spring 2001 ( late feb .
or early march ) to discuss four topics : risk management , deregulation ,
real options , and international / globalization .
2 . the conference will kick off with a dinner / keynote address thur .
evening , then continue all day fri .
3 . i have had several discussions with you regarding conference timing ,
structure , participation and content .
4 . further to rick ' s agreement to do so during our discussion last thur . ,
in today ' s e - mail i asked rick to extend an invitation to jeff skilling to
be the keynote speaker at the thur . evening dinner .
ii . with respect to the second topic , rick and i also discussed ut
partcipation in enron corp . internal training for incoming enron corp .
analysts and associates . consequently , i e - mailed rick this morning a
specific set of issues - - " valuation and risk management in energy markets "
- - which my ut colleagues and i have covered in public as well as
customized exec ed settings , and which we would be pleased to customize for
presentation at enron . fyi , i am enclosing a copy of said topics at the
end of this e - mail .
i look forward to seeing you again soon , and to your ut visit on 10 / 11 . best ,
ehud
training program : " valuation and risk management in energy markets "
target audience : associates , analysts , traders , marketing / sales , risk
managers , financial analysts
program objectives :
1 . understanding the physical and financial u . s . markets for electricity
and natural gas
2 . understanding the structuring , reverse engineering and valuation of
exchange - traded and otc energy derivatives , including " exotic " options ,
structured products , and spread and basis products
3 . promoting a common language between trading and marketing personnel
regarding valuation and hedging of structured products
4 . risk - management
program contents :
i . " electricity 101 "
- - problems in pricing
- - spot markets
- - forward markets
- - trading : basis , fixed - price , volatility
- - markets : characteristics and participants
ii . valuation / structuring / hedging
1 . fundamentals of forwards and futures contracts :
- - forward contracts : definition , payoff diagram , pricing by arbitrage
- - futures vs . forwards
- - commodity futures
- - swaps
- - constructing forward curves : contrast with price forecast ; using the
spark spread ; incorporating regional bases
2 . introduction to option pricing :
- - payoffs
- - put - call parity
- - binomial model
- - black - scholes formula
- - option " sensitivities " ( the " greeks " ) ; delta and gamma
3 . uniqueness of energy derivatives :
- - " term structure " of volatility
- - convenience yield / seasonality
- - basis
4 . estimating volatility in energy markets :
- - estimating volatility in financial markets
- - hourly vs . daily vols
- - historical or implied vols ?
- - characterizing the volatility " surface " across time and strike
5 . design and valuation of structured products in commodity markets :
- - valuation of european call options in energy markets
- - average options on oil futures contracts
- - spread and basis products
- - " swing " options in power markets
- - weather derivatives
6 . risk - management
- - motivation for structured trades
- - valuation of real options ( e . g . , valuation of power plant or gas field )
- - value - at - risk ( one - and multi - factor models )
- - repowering option
7 . advanced topics ( for qualified audiences )
- - relationship between forward prices and expected spot prices
- - the importance of hedging volatility changes
- - consistent method for estimating hourly , daily and monthly term
structures of volatility
- - practical alternatives to vega - hedging
- - applying options theory to the valuation of power plants
- - valuation of " swing " options under ruthless and non - ruthless exercise
ehud i . ronn
professor of finance and jack s . josey professor in energy studies
director , center for energy finance education and research
mccombs school of business
university of texas at austin
austin , tx . 78712 - 1179
voice : ( 512 ) 471 - 5853
fax : ( 512 ) 471 - 5073
internet : eronn @ mail . utexas . edu
update on ut - enron activities : my conversation with rick causey
vince ,
good morning .
as you may know , last thur . enron honored this year ' s recipients of the
enron mba excellence fund scholars at a dinner in austin . in addition to
the three recipients , business school dean may and several of my
colleagues , enron attendees included sally beck , cindy justice , karen
marshall ( newly - appointed coordinator of higher education initiatives for
enron community relations dept . ) and rick causey .
i write you at this time to advise you i had occasion to discuss two
current enron / ut issues with rick :
i . spring 2001 conference participation by jeffrey k . skilling
ii . ut participation in enrontraining activities
per my conversation with rick last thur . , i followed up on that discussion
with an e - mail this morn that touched on those two topics .
i . with respect to the first , i wrote rick this morning that :
1 . we at the ut center for energy finance education and research ( cefer )
are planning a practitioner - industry conference in spring 2001 ( late feb .
or early march ) to discuss four topics : risk management , deregulation ,
real options , and international / globalization .
2 . the conference will kick off with a dinner / keynote address thur .
evening , then continue all day fri .
3 . i have had several discussions with you regarding conference timing ,
structure , participation and content .
4 . further to rick ' s agreement to do so during our discussion last thur . ,
in today ' s e - mail i asked rick to extend an invitation to jeff skilling to
be the keynote speaker at the thur . evening dinner .
ii . with respect to the second topic , rick and i also discussed ut
partcipation in enron corp . internal training for incoming enron corp .
analysts and associates . consequently , i e - mailed rick this morning a
specific set of issues - - " valuation and risk management in energy markets "
- - which my ut colleagues and i have covered in public as well as
customized exec ed settings , and which we would be pleased to customize for
presentation at enron . fyi , i am enclosing a copy of said topics at the
end of this e - mail .
i look forward to seeing you again soon , and to your ut visit on 10 / 11 . best ,
ehud
training program : " valuation and risk management in energy markets "
target audience : associates , analysts , traders , marketing / sales , risk
managers , financial analysts
program objectives :
1 . understanding the physical and financial u . s . markets for electricity
and natural gas
2 . understanding the structuring , reverse engineering and valuation of
exchange - traded and otc energy derivatives , including " exotic " options ,
structured products , and spread and basis products
3 . promoting a common language between trading and marketing personnel
regarding valuation and hedging of structured products
4 . risk - management
program contents :
i . " electricity 101 "
- - problems in pricing
- - spot markets
- - forward markets
- - trading : basis , fixed - price , volatility
- - markets : characteristics and participants
ii . valuation / structuring / hedging
1 . fundamentals of forwards and futures contracts :
- - forward contracts : definition , payoff diagram , pricing by arbitrage
- - futures vs . forwards
- - commodity futures
- - swaps
- - constructing forward curves : contrast with price forecast ; using the
spark spread ; incorporating regional bases
2 . introduction to option pricing :
- - payoffs
- - put - call parity
- - binomial model
- - black - scholes formula
- - option " sensitivities " ( the " greeks " ) ; delta and gamma
3 . uniqueness of energy derivatives :
- - " term structure " of volatility
- - convenience yield / seasonality
- - basis
4 . estimating volatility in energy markets :
- - estimating volatility in financial markets
- - hourly vs . daily vols
- - historical or implied vols ?
- - characterizing the volatility " surface " across time and strike
5 . design and valuation of structured products in commodity markets :
- - valuation of european call options in energy markets
- - average options on oil futures contracts
- - spread and basis products
- - " swing " options in power markets
- - weather derivatives
6 . risk - management
- - motivation for structured trades
- - valuation of real options ( e . g . , valuation of power plant or gas field )
- - value - at - risk ( one - and multi - factor models )
- - repowering option
7 . advanced topics ( for qualified audiences )
- - relationship between forward prices and expected spot prices
- - the importance of hedging volatility changes
- - consistent method for estimating hourly , daily and monthly term
structures of volatility
- - practical alternatives to vega - hedging
- - applying options theory to the valuation of power plants
- - valuation of " swing " options under ruthless and non - ruthless exercise
ehud i . ronn
professor of finance and jack s . josey professor in energy studies
director , center for energy finance education and research
mccombs school of business
university of texas at austin
austin , tx . 78712 - 1179
voice : ( 512 ) 471 - 5853
fax : ( 512 ) 471 - 5073
internet : eronn @ mail . utexas . edu
