Trading strategies

Trading strategies category description
Keywords: hedging, trading strategy
Published in: Commodities Now
Publication year: 2004
Co-Author 1: Pankaj Khandelwal

A key ingredient to the valuation and risk management of natural gas storage assets is the definition of the trading strategy that is executed by storage operators and monitored by risk managers. This trading strategy, which details the hedging style, allows for the extraction of value from the storage facility.
Keywords: crude oil
Published in: Energy Economics
Publication year: 1999
Co-author 1: Barbara Ostdiek

We examine the effects of energy derivatives trading on the crude oil market. There is a common public and regulatory perception that derivative securities increase volatility and can have a destabilizing effect on the underlying market. Consistent with this view, we find an abnormal increase in volatility for three consecutive weeks following the introduction of NYMEX crude oil futures. While there is also evidence of a longer-term volatility increase, this is likely due to exogenous factors, such as the continuing deregulation of the energy markets. Subsequent introductions of crude oil options and derivatives on other energy commodities have no effect on crude oil volatility. We also examine the effects of derivatives trading on the depth and liquidity of the crude oil market. This analysis reveals a strong inverse relation between the open interest in crude oil futures and spot market volatility. Specifically, when open interest is greater, the volatility shock associated with a given unexpected increase in volume is much smaller.

Getting physical

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Published in: Energy Risk
Publication year: 2004


Asset-backed trading strategies usually employ a combination of physical positions, which are subject to physical risk; and financial hedging intruments, which are not. Here, Steve Leppard shows how value-at-risk, applied to this combined risk scenario, can go a long way towards the thorny issue of hedging physically risky power generation assets.
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Published in: Energy Risk
Publication year: 2003
Co-author 1: Kasper Walet

The Bunde-Oude natural gas hub on the German-Dutch border is the most likely candidate to become the Henry Hub of Europe, according to a survey of European natural gas experts conducted by Maycroft Consultancy Services

Spark Spread Options Are Hot!

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Published in: The Electricity Journal
Publication year: 1998

In a competitive electricity industry, natural gas power plant operators should dispatch a generation unit based on prevailing spot electricity and gas prices. This choice is best described by the “spread option” concepts often discussed in the financial arena. Ignorance of these concepts will inevitably lead to values lost.