Registration and coffee

Arbitrage modelling of commodity prices

• Spot and forward prices: Replication and stylized facts
• Spot-convenience yield vs. forward models: How to build your tool
• Examples: From Gibson-Schwartz to stochastic volatility models
• Commodity model calibration: Kalman filter vs. functional likelihood estimation
• Case-study: How to estimate a forward curve model on commodity price data

Morning break

Analytical pricing of commodity options

• Fitting the quoted forward curve, seasonal volatility patterns, mean reversion and price
  shocks of jump type
• The Carr-Madan transform-based pricing method in a nutshell
• Asian-style options: Typology of tradeable averages
• Analytical pricing under discrete monitoring
• Case-study: Comparative tests of alternative pricing devices

Lunch

Cross-commodity dependence

• Linear correlation and its pitfalls
• Copula functions and dependence measures
• Estimation of a parametric copula function
• Simulation of multi-commodity price dynamics
• Case-study: Calibration of two alternative copula models for the spark spread

Afternoon

Pricing and hedging commodity flow assets

• Multiple-exercise options: Swing contracts and storage options
• Dynamic programming vs. least-squares simulation
• Flow pattern hedging using static forward strategies
• A RAROC-based approach to risk measurement
• Case-study: Tariff, risk and hedging ratio for a energy load-serving contract

End of seminar