ACF Academy
Energy & Commodities Training Training
Category:
 Energy & Commodities Training
Targeted Audience:
 Anyone working in the commodity or energy markets
Prerequisites:
 None
CPE Credits:
 21 hours
Course Level:
 Intermediate
 
Date  DurationCostVenueRegister
29-31 Aug 2018  3 days£2875.00London

Energy and Commodity Derivatives

The principal objectives of this intensive three-day seminar are to:
 
  Give participants a clear understanding of energy and commodity derivatives
  Ensure delegates have an intuitive understanding of forward curves, and how they influence the pricing of energy and commodity derivatives
  Clarify the meaning of volatility and how it affects option prices
  Contrast energy and commodity derivatives markets with financial derivatives
  Demonstrate the practical applications of derivatives and their use by clients
  Consider the needs and perspectives of clients
  Promote pro-active and innovative strategies using energy and commodity derivative products that add real value
  Consolidate the learning experience by giving delegates hands-on experience of energy and commodity derivatives and their use in various structures
 
Hot Topic  Opportunities and risks in an environment of volatile prices.
 
After attending this programme, delegates will:
   
  gain a clear appreciation of the range of energy and commodity derivatives
  understand how these derivatives are priced
  appreciate how to apply these products for the benefit of clients
  identify risks and understand how to manage them

 
Course Outline
   
The first day of the program covers delta-one commodity products like forwards, futures, and swaps. At the end, we will lay the foundations of options in preparation for the second day.
   
 Introduction
   
The energy and commodity markets
Supply and demand in the markets
Oil, Gas, and Electricity markets
Commodity markets
Types of transaction
Comparison with financial markets
Dynamics of trading in the energy and commodity markets
   
 Forward Pricing and the Forward Curve
   
Time, cash, and energy flow diagrams
Link between spot and forward prices
Arbitrage-free pricing
The forward price curve
Contango and backwardation
Seasonality
Energy and commodity price curves
Theory vs. practice in the markets
Supply and demand
The convenience yield
Cost and risk adjustments to spot prices
Constructing a forward price curve
   
 Energy and Commodity Futures
   
Contract definitions
Examples of futures prices
Trading features
Standardisation of contracts
Physical delivery vs. cash settlement
Margins
Advantages and uses for futures
Hedging
Basis and convergence
Using energy futures to hedge
 
   
 Swaps
   
Definitions and terminology
Cash flows and timings for swaps
Quotation conventions
Indexing the floating rate
Energy swap applications
Fixed-floating swaps
Basis swaps
Multi-fuel swaps
Swing swaps
Spread swaps
Embedded swaps
Hedging with energy swaps
Swap pricing principles
Valuing the fixed and indexed legs
Determining the fair swap price
Swap prices and the forward curve
Pricing off-market swaps
Cancelling or reversing a swap
Releasing value from existing trades
Swap pricing workshop
   
 Principles and Characteristics of Options
   
Introduction to options
Options definitions and terminology
Calls and puts; buying and selling
American vs. European style
In-, at-, and out-of-the-money
Value and profit profiles
Intrinsic and time value
Components of time value
What the buyer pays for – the true cost of an option
Profit profiles at maturity
Profit profiles prior to maturity
Comparison of OTC vs. exchange-traded products
   
 
   
The second day of the program starts by looks at options pricing principles. Delegates then get involved in understanding how options can be combined to produce various structures, and how these structures can be used to create effective hedging programs. In the final section, we will explain swaptions, and how flexibility can be added to a standard swap contract by embedding one or more swaptions.
   
 Options Pricing Principles
   
An intuitive insight into option pricing
Closed-form pricing models
Binomial pricing models
Monte Carlo pricing models
Option pricing workshop
Put-call parity
American options and early-exercise
Volatility – historical, implied experienced
Volatility and option prices
Volatility smiles and skews
Measures of price sensitivity
Delta – the hedge ratio
Gamma – the change in delta
Theta – the decay of time value
Vega – the sensitivity to volatility
Greeks workshop
   
 Building Option Portfolios
   
Horizontal, vertical, and diagonal spreads
Straddles and strangles
Ratio spreads and backspreads
Strips of options – caps and floors
Designing your own structure – a fluent transition between payoff diagrams and component parts
   
 Option Strategy and Hedging Structures
   
Protective puts & calls / caps & floors
Price enhancement strategies
Selling options within a hedging program
Collars, corridors, and participations
Reduced-cost and zero-cost structures
Combining options, futures, and swaps
Hedging customer energy exposure
   
 Swaptions
   
Swaptions – calls and puts
Combining swaptions with swaps
Extendable and cancellable swaps
Embedding swaptions
Pricing a cancellable swap
   
   
   
The final day of the program starts by explaining how options themselves are hedged, and the links between volatility, pricing, risk, and profitability. Delegates then look at practical trading strategies, and the dynamics of the energy options market. Next, we review second-generation options, concentrating especially on those which can be used to create practical real-world solutions for clients wishing to hedge their energy exposures more effectively.

The last afternoon is then devoted to an intensive session where delegates, working in teams, are required to identify, measure, and analyse the energy risks of a specific client, assess the client’s needs, design innovative and value-added solutions to meet those needs, and then make their pitch for the client’s business in competition with other teams. This last session will combine all the important learning points, and provide a link with the practical problems faced by clients.
   
 Delta Hedging
   
How delta-hedging works
Buying high and selling low to achieve delta-neutrality
The link between delta and gamma
The cost of being negative gamma
The benefit of being positive theta
Gamma and theta as mirror-images
The trade-off between implied volatility and experienced volatility
How traders price and trade vol
The link between theta and vega
Gamma hedging
   
 Trading Strategies with Options
   
Directional vs. Volatility trading
Choice of option
Options vs. Cash
Energy option trading simulation
   
 Second-Generation Options
   
Introduction to exotic options
A taxonomy of exotics
Path-dependent options
Options with step-like (singular) payouts
Everyday exotics: barriers and digitals
Other exotics: compound, average rate and average strike, lookback, chooser, contingent, forward-start, correlation products
Exotic option workshop
   
 Adding Value for Clients – Energy Derivatives Strategies that Work
   
Identifying and quantifying energy risk
Spotting opportunities
Establishing client objectives – what does the client really want?
Determining client preferences, pain thresholds, and view
Tailoring the structure to match the need
Designing innovative and pro-active solutions
Cross-product ideas
Communicating with the client
Energy risk hedging case
   

 

NB All practical sessions are highlighted like this:
means a Workshop or Simulation
means a Case study
 
Accreditation


 

"The overview was excellent – right balance for his audience – to address everyone's need."

– Dorothy M.