Market & Credit Risk Management for Energy Portfolios

Are you finding it difficult to report on relevant market and credit risk metrics with accuracy through your current risk systems? By attending this course, you will gain a thorough understanding of the range of market and credit risk metrics and their advantages and disadvantages for handling complex energy portfolios.

You will learn what the “best-of-class” market and credit risk measures are for joint portfolios of physical assets and financial contracts, as well as how to use these metrics to measure the effectiveness of hedging strategies.

This course can be tailored to your needs. A sample outline is shown below.

Day 1

Morning

Market and credit risk measures

  • What constitutes a ‘best-in-class’ risk management division within an energy company?
  • The types and relevance of available risk metrics
  • At risk metrics versus scenario analysis
  • Underlying markets
    • oil, gas, power and other commodities
  • Assets and contracts
    • Physical assets (power plants, gas storage, pipelines)
    • Financial contracts
      • Forwards, swaps, options, asians
      • Gas storage, swing, tolling agreements, power purchase agreements
  • Generating the scenarios
    • Single and multi-factor models
  • Model risk
  • Traded versus non-traded books

Workshop: scenario generation      

Afternoon

Value-based risk metrics

  • Analysis of value-at-risk (VaR) for energy and commodity portfolios
    • Delta VaR (parametric, analytical)
    • Delta-gamma VaR
    • Historic simulation
    • Monte-Carlo simulation
    • Extreme value theory
    • Incremental and marginal VaR
    • Vega VaR
  • Confidence levels and holding periods
  • Stress testing versus VaR metrics
  • Simplifying physical assets and complex contracts into VaR calculations
    • Gas storage
    • Power and gas swing contracts
    • Power plants
    • Back testing strategies

Workshop: historical, delta and simulation VaR, incremental VaR

 

Day 2

Morning

Cashflow based risk metrics

  • Going beyond VaR for asset heavy portfolios
  • The different types of cashflow based risk metrics
    • Cashflow-at-risk, profit-at-risk, gross margin-at-risk, revenue-at-risk, earnings-at-risk
  • Deriving cashflows for physical assets and complex contracts
    • Power plants – thermal, wind and hydro
      • Full dispatch or approximate as spreads?
  • Gas storage and gas swing contracts
  • Consolidating cashflow-at-risk across power and gas portfolios
  • Sensitivity analysis
  • Using cashflow-at-risk to measure the effectiveness of hedging strategies

Workshop: cashflow-at-risk for portfolios of assets and financial contracts, analysing hedging strategies

Afternoon

Credit risk metrics

  • Key components of credit risk models
  • Assessing creditworthiness
  • Capital allocation and performance measurement
  • Credit Value Adjustments
  • Potential future exposure (PFE)
  • Credit VaR – what is your definition?
  • Credit risk models
  • Credit metrics
    • Modelling credit rating changes
    • Simulation of counterparty market values
    • Recover rates
    • Portfolio calculations
  • Liquidity Analysis

Workshop: calculating PFE for energy contracts


To discuss your in-house course requirements, contact us.