Energy Finance

Objectives

Objectives

Energy finance is different from traditional finance because of the physical specificities of the underlying markets and products. Hence, we will start by studying the physical properties of energy commodities. Then, we will study how to manage risk in the energy business using financial derivatives. The course structure is based on the GARP Energy Risk Professional curriculum, though with different emphasis on some of the topics.

General characterization

Code

2261

Credits

3.5

Responsible teacher

João Pedro Pereira

Hours

Weekly - Available soon

Total - Available soon

Teaching language

English

Prerequisites

Available soon

Bibliography

A set of handouts will be distributed in class.

Details on the books referred above:

1. Edwards, 2010. Energy trading and investing. McGraw-Hill.

2. Hull, 2012. Options, futures, and other derivatives, 8th ed. Prentice Hall.

3. Errera and Brown, 2002. Fundamentals of Trading Energy Futures and Options. PennWell.

4. Kaminski, 2004. Managing Energy Price Risk. Risk Books.

5. Mackay, 2008. Sustainable energy – without the hot air. Available online.

Auxiliary references

1. FERC, 2012. Energy Primer – A Handbook of Energy Market Basics. Available online.

Teaching method

T.   Teaching Methods. The course will follow a standard lecture mode, where we will:
1.   Discuss the theory of each topic.
2.   Solve applied problems.

Evaluation method

The final grade is computed as follows:
•    Final exam (mandatory): 60%
o    The exam is closed-book and closed-notes. However, you may use a two-sided A4 formula sheet and a pocket calculator.
•    Homework problems and projects: 30%
•    In-class quizzes and activities: 10%
•    Class participation: rounding of the final grade.

In accordance with the school’s norms, there is no procedure for grade improvement after passing a course (no re-sit or second course enrolment).

Subject matter

The following contents are tentative and may need to be updated as we go through the course. Any changes will be communicated clearly. The main readings are indicated for each topic.

Class	Topic
1	1. Energy basic concepts, definitions, and units: Mackay (2008), chapter 2.
2	2. Hydrocarbons: 2.1. Crude oil markets - Edwards (2010), ch 2.3; 2.2. Natural gas markets - Edwards (2010), ch 2.1, 5.1, 5.2, 5.3; 2.3. Coal markets - Edwards (2010), ch 2.4.
3	3. Electricity markets: Edwards (2010), ch 2.4 and 4.2.
4	4. Energy Futures: 4.1. Review of basic notions of futures and forwards - Hull (2012), ch 1, 2, 3, 5; 4.2. Main energy futures markets and contracts; 4.3. Hedging and speculation with energy futures - Errera and Brown (2002), ch 3, 4, 5.
5
6	5. Energy Swaps: 5.1. Review of basic notions of swaps - Hull (2012), ch 7; 5.2. Hedging and speculation with energy swaps - Kaminski, (2004), ch 1.
7	6. Energy Options: 6.1. Review of basic notions of options - Hull (2012), ch 9, 10, 11; 6.2. Options on Futures - Hull (2012), ch 17; 6.3. Main energy options markets and contracts; 6.4. Hedging and speculation with energy options - Errera and Brown (2002), ch 7, Edwards (2010), ch 3.6, Kaminski, (2004), ch 2.
8
9
10	[Class presentations by students]
11	[Class presentations by students]
12	Review / Catch up or Guest Speaker

Programs

Programs where the course is taught: