Energy Finance
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
n/a
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
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.
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.
1. Energy basic concepts, definitions, and units: Mackay (2008), chapter 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. Electricity markets: Edwards (2010), ch 2.4 and 4.2.
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. 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.
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.
10 [Class presentations by students]
11 [Class presentations by students]
12 Review / Catch up or Guest Speaker