Mathematics 16:643:628 Topics in Mathematical Finance: Energy Risk, Commodities, and Derivative Modeling
ScheduleThe course is offered during the Spring semester.
- Class meeting dates: Please visit the University's academic calendar.
- Schedule and Instructor: Please visit the University's schedule of classes for the instructor, time, and room.
- Instructor and Teaching Assistant Office Hours: Please visit the Mathematical Finance program's office hour schedule.
This course will focus on portfolio management and valuation issues pertaining to Financial and physical structures in energy markets. Topics will include market mechanics and structure, econometric analysis of energy price dynamics and underlying drivers, and a variety of derivatives valuation methodologies applied to situations commonly encountered in the energy space. Particular attention will be paid to the limitations of standard valuation methods due to inherent market incompleteness and limitations in liquidity of traded products.1. Context: Key features of energy markets and modeling issues.
2. Macro Perspective: Market characteristics and price dynamics.
3. Basic Risk Neutral Valuation: Black 76, futures versus forwards and American options.
4. Forward Dynamics and Swaps Books: Econometric analysis of forward curve dynamics and applications.
5. Volatility, Skew and Correlation: Common methods for modeling volatility and correlation structure.
6. Multi-Factor Models: Application of common modeling paradigms, with particular focus on exponential factor models.
7. Advanced Structures: Valuation and hedging methods for natural gas storage, generation assets, variable quantity swaps and commodity- linked credit structures.
8. Enterprise-Wide Issues: VaR and related risk metrics.
Pre-requisitesMath 573 and 621 (or graduate level stochastic calculus and numerical analysis and programming proficiency in MATLAB or R).
Textbooks1. Glen Swindle, Energy Markets: Valuation and Risk Management (Galleys).
2. Eydeland and Wolniek, Energy and Power Risk Management: New Developments in Modeling, Pricing and Hedging.
3. Clewlow and Strickland, Energy Derivatives: Pricing and Risk Management, latest edition.
4. Heleyette Geman, Commodity and Commodity Derivatives