Thursday 05 November 2009

Post-congress seminar 2

Commodity price models for derivative valuation and risk measurement

Led by Andrea Roncoroni, Associate Professor of Finance, ESSEC Business-School, Paris- Singapore

9.00 Registration and coffee

9.30 Modelling commodity prices

• Commodity price features: empirical analysis
• A general framework for modelling commodity prices
• Case-study 1: How to choose a model setting (spot-convenience yield models vs. forward price models)
• Case-study 2: How to build your models in practice?

11.00 Morning break

11.30 Commodity models implementation

• Model estimation: Kalman filtering and maximum likelihood
• Optimal bootstrapping of key rates from market observables
• Case-study 3: Extended Gibson-Schwartz spot-convenience yield model with seasonal volatility
• Case-study 4: A two-factor extension of Jamshidian future price model with seasonal volatility

12.30 Lunch

13.30 Scenario simulation, risk measurement and stress test analysis

• Estimation of the historical drift using GMM and non-parametric methods
• Case-study 5: How to simulate spot-convenience yield and forward models
• Calculating the Portfolio Future Exposure (PFE) of a commodity book
• Case-study 6: Risk reduction using static hedging under VaR constraints

15.00 Afternoon break

15.30 Derivative pricing: Asian-style options and spark spread contracts

• Analytical pricing of arithmetic average commodity options with mean reversion and time varying volatility
• Analytical pricing of geometric average options with stochastic volatility and jumps
• Case-study 7: Simulation pricing using control variates
• Case-study 8: Spark spread option pricing using alternative dynamic copula models