This course takes instruction about energy derivatives to the next level, providing a more sophisticated perspective on the subjects of swaps and options, but without introducing complex mathematics.  The business opportunities from existing swaps and scheduled physical transactions are explored as off-market pricing strategies along with their implications as a source of funding.  Options on swaps provide another more complex family of risk management tools.  These also are examined along with, as always practical examples of their application.  

Energy is different from financial products (i.e. equities, currencies, etc.) in the area of risk management.  It is essential for energy professionals to comprehend the differences and their implications.  To this end, this course addresses the numerous ways in which the standard energy option pricing model works and, more critically, how it differs from the more conventional models used in the world of finance and general academia.  The discussion of option pricing continues, exploring in detail the process of trading volatility with its key risk measures:  delta, gamma, theta, etc. 

Applied Energy Derivatives (Derivatives 1) or its equivalent is a prerequisite for this program; no other advanced preparation is required. 

 The Results

 At the conclusion of this course, participants will be able to:

ü      Compare and analyze among the several methods for reversing a derivative position.

ü      Structure an off-market priced swap to meet strategic objectives.

ü      Monetize an existing swap position.

ü      Blend and extend a contract to create more favorable pricing

ü      Recognize how energy option pricing differs in calculation modeling from the standard Black-Scholes approach used for financial products.

ü      Recognize how volatility and time value affect derivative pricing models.  

ü      Calculate and annualize price volatility with its term structures.

ü      Arbitrage option markets by creating synthetic put and calls. 

ü      Interpret the influence of volatility smiles and skews on derivative structuring.

ü      Understand the dynamic hedge process used to extract cash value from options.  

ü      Know in precise detail the mechanisms and strategies for trading volatility.

ü      Aggregate and manage option risk (delta, gamma, theta, etc.) on a portfolio basis.

ü      Stress test option risk positions

ü      Create extendible and cancelable energy contracts.

ü      Compare costs/benefits of swaptions versus option strips (i.e. caps, floors, etc.)

CPE Credits earned are:

Accounting & Auditing – 2

Consulting Services – 1

Management – 1

Specialized Knowledge & Applications – 12