Modeling and Valuation of Energy Structures Analytics, Econometrics, and Numerics / by Daniel Mahoney. [electronic resource]

This book is a comprehensive guide to quantitative and statistical approaches that have been successfully employed in support of trading operations.

Includes bibliographies and index.

Cover ; Half-Tile ; Title ; Contents; List of Figures; List of Tables; Preface; Acknowledgments; 1 Synopsis of Selected EnergyMarkets and Structures; 1.1 Challenges of modeling in energy markets; 1.1.1 High volatilities/jumps; 1.1.2 Small samples; 1.1.3 Structural change; 1.1.4 Physical/operational constraints; 1.2 Characteristic structured products; 1.2.1 Tolling arrangements; 1.2.2 Gas transport; 1.2.3 Gas storage; 1.2.4 Load serving; 1.3 Prelude to robust valuation; 2 Data Analysis and StatisticalIssues; 2.1 Stationary vs. non-stationary processes; 2.1.1 Concepts

2.1.2 Basic discrete time models: AR and VAR2.2 Variance scaling laws and volatilityaccumulation33; 2.2.1 The role of fundamentals and exogenous drivers; 2.2.2 Time scales and robust estimation; 2.2.3 Jumps and estimation issues; 2.2.4 Spot prices; 2.2.5 Forward prices; 2.2.6 Demand side: temperature; 2.2.7 Supply side: heat rates, spreads, and productionstructure; 2.3 A recap; 3 Valuation, Portfolios, andOptimization; 3.1 Optionality, hedging, and valuation; 3.1.1 Valuation as a portfolio construction problem; 3.1.2 Black Scholes as a paradigm; 3.1.3 Static vs. dynamic strategies

3.1.4 More on dynamic hedging: rolling intrinsic3.1.5 Market resolution and liquidity; 3.1.6 Hedging miscellany: greeks, hedge costs, and discounting; 3.2 Incomplete markets and the minimal martingale measure^61; 3.2.1 Valuation and dynamic strategies; 3.2.2 Residual risk and portfolio analysis; 3.3 Stochastic optimization; 3.3.1 Stochastic dynamic programming and HJB; 3.3.2 Martingale duality; 3.4 Appendix; 3.4.1 Vega hedging and value drivers; 3.4.2 Value drivers and information conditioning; 4 Selected Case Studies; 4.1 Storage; 4.2 Tolling; 4.3 Appendix

4.3.1 (Monthly) Spread option representation of storage4.3.2 Lower-bound tolling payoffs; 5 Analytical Techniques; 5.1 Change of measure techniques; 5.1.1 Review/main ideas; 5.1.2 Dimension reduction/computation facilitation/estimation robustness; 5.1.3 Max/min options; 5.1.4 Quintessential option pricing formula; 5.1.5 Symmetry results: Asian options; 5.2 Affine jump diffusions/characteristic function methods; 5.2.1 Lévy processes; 5.2.2 Stochastic volatility; 5.2.3 Pseudo-unification: affine jump diffusions; 5.2.4 General results/contour integration; 5.2.5 Specific examples

5.2.6 Application to change of measure5.2.7 Spot and implied forward models; 5.2.8 Fundamental drivers and exogeneity; 5.2.9 Minimal martingale applications; 5.3 Appendix; 5.3.1 More Asian option results; 5.3.2 Further change-of-measure applications; 6 Econometric Concepts; 6.1 Cointegration and mean reversion; 6.1.1 Basic ideas; 6.1.2 Granger causality; 6.1.3 Vector Error Correction Model (VECM); 6.1.4 Connection to scaling laws; 6.2 Stochastic filtering; 6.2.1 Basic concepts; 6.2.2 The Kalman filter and its extensions

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