SUMMARY

• Edited by Vincent Kaminski, a leading authority on the modelling of energy risks and the development of new trading strategies, the book balances chapters on complex analytical techniques with more accessible explanations of the key topics.

• Provides a full view of the latest analytical techniques and modelling strategies to help you effectively measure risk and cope with recent market developments.>

• Reflecting the many significant recent changes in energy markets, this book features a number of newly commissioned chapters from the most current experts to cover: the impact of the weather on the trading; valuation and risk management of full requirements deals; pricing and hedging of heat rate options; credit risk modelling; capital adequacy models; bidding strategies in the US power pools; and managing congestion risk.

• All chapters have been extensively overhauled and rewritten using new evidence, figures, case studies and panels.

• Accessible enough for those who want a general understanding of the quantitative tools used in the energy business.

• Essential reading for traders, risk managers and those seeking a general understanding of quantitative trading in the energy markets.

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  TABLE OF CONTENTS

Introduction
Vincent Kaminski
Citigroup

Section 1: Modelling Energy Markets and Pricing Derivatives
Section Introduction
Vincent Kaminski
Citigroup

1 Selecting Stochastic Processes for Modelling Electricity Prices
Blake Johnson and Graydon Barz
Stanford University

2 Fundamentals of ElectricityDerivatives
Alexander Eydeland; Hélyette Geman
Morgan Stanley; University Paris IX Dauphine

3 Pricing, Modelling and Managing Physical Power Derivatives
Corwin Joy
Baylor College of Medicine

4 Valuing Power and WeatherDerivatives on a Mesh Using Finite Difference Methods
Craig Pirrong; Martin Jermakyan
Olin School of Business and Washington University; Vernadun, LLC

5 Modelling Energy Prices and Derivatives using Monte Carlo Methods
John Putney
National Power plc

6 Fundamental Analysis of Power Price Modelling
Roman Kosecki
MAK Energy Consultants

7 Management of Transmission in the Electricity Markets
Martin Lin

Section 2: Modelling and Market Realities
Section Introduction
Vincent Kaminski
Citigroup

8 The Importance of Market Structure and Incentives in Determining Energy Price Risk
Giulio Federico; Adam Whitmore
CRA International (UK) Limited; Deloitte

9 Impacts of the Weather on EnergyDemand and Supplies
Daniel Guertin
Sempra Energy Trading

10 Full-Requirement Contracts
Yan Gao; Harald Ullrich; Krzysztof Wolyniec
Progress Energy; Constellation Energy Commodities Group; Sempra Commodities

11 Heat Rate Options
Boris Chibisov, Alexander Eydeland; Krzysztof Wolyniec
Morgan Stanley; Sempra Commodities

12 Credit Risk Management for the EnergyIndustry - Some Perspectives
Vincent Kaminski; Vasant Shanbhogue
Citigroup; AIG Financial Products Corp

13 Capital Adequacy for Companies Transacting in US Electric Power Markets
Laura L. Brooks
PSEG

14 Generator Bid Strategies in Deregulated Markets: an Empirical Approach
Paul Flemming
Energy Security Analysis, Inc

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  QUOTES

″Expert insight into where risk management research stands in the energy sector... the book is extremely valuable, up-to-date and comprehensive.″
FT Power

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  REVIEW

Review of Energy Modelling and the Management of Uncertainty/Managing Energy Price Risk 2nd Edition by Oliver Montfort, FT Power UK

Energy risk help is at hand. The introduction of new electricity trading arrangements next year is set to give a whole raft of risk Managers an increased workload.

Anyone interested in this area of work will be tempted to buy two new books from Risk Publications. Both 'Managing Energy Price Risk' and 'Energy Modelling and the management of Uncertainty' give an expert insight into where risk management research stands in the energy sector.

Sophisticated techniques and tools predominantly used in financial markets are explored and applied to the energy industry. Both volumes consist of a series of articles by various experts with finance, energy or academic backgrounds.

'Managing Energy Price Risk' covers an extensive range of topics from energy instruments, to developments in the energy markets, risk measurement and tools for risk analysis. The first section deals with energy derivatives pricing methods for swaps, exotic options and derivatives in energy project finance.

The second section reviews the risk management tools currently used in the oil, gas, and electricity industries. The concept of Value at Risk calculation, credit risk and accounting reporting are presented in chapter three. The section assesses the most sophisticated tools currently under development. The emphasis is on statistical matters such as arbitrage free valuations, volatilities, correlations and cointegrations.

'Energy Modelling and the Management of Uncertainty' is basically a more quantitative version of 'Managing Energy Price Risk'. The first section highlights the key techniques that can be used in energy pricing. Options pricing in the energy industry is examined using stochastic calculus (e.g. Black Scholes model), finite difference methods and Monte Carlo techniques. The second section asserts the application of those techniques to market realities.

Risk managers and everyone with an interest in risk will find both books extremely valuable, up to date and comprehensive. The latest risk issues are explored and every author seems to keep in mind the practical applicability of these sophisticated tools. An additional strength is the quality of the authors and the diversity of their backgrounds.

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  AUTHOR BIOGRAPHY

Vincent (Vince) Kaminski is currently working as a managing director at Citigroup, Houston. Before assuming this role, he served as a managing director and a consultant at Sempra Energy Trading and a senior vice president of commercial analytics at Reliant Resources, Inc. in Houston.
Before joining Reliant, Vince was a managing director of Citadel Investment Group LLC. Prior to this, Vince was the head of the quantitative modelling group at Enron Corp (from 1992 to 2002) and a vice-president in the research department, bond portfolio analysis group, of Salomon Brothers in New York (from 1986 to 1992).
Vince is an adjunct associate professor at Rice University in Houston (Jones Graduate School of Management) and he serves on the executive committee of the Global Energy Management Institute at Bauer College of Business, University of Houston. Vince holds an MS degree in international economics, a PhD degree in theoretical economics from the Main School of Planning and Statistics in Warsaw and an MBA from Fordham University in New York. He is a recipient of the 1999 James H. McGraw award for Energy Risk Management (Energy Risk Manager of the Year).
His recent publications include: Managing Energy Price Risk (all three editions) and "The Challenge of Pricing and Risk Managing Electricity Derivatives" in The US Power Market, both from Risk Books; and Energy Derivatives: Pricing and Risk Management, Lacima Publications.

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  CONTRIBUTORS

Graydon Barz; Laura L. Brooks, PSEG; Boris Chibisov, Morgan Stanley; Alexander Eydeland, Morgan Stanley; Giulio Federico, CRA International (UK) Limited; Paul Flemming, ESAI; Yan Gao, Progress Energy Ventures; Hélyette Geman, University Paris IX Dauphine; Daniel (Dan) Guertin, Sempra Energy Trading; Martin Jermakyan Vernadun, LLC; Blake Johnson, Stanford University; Corwin Joy, Baylor College of Medicine; Vincent (Vince) Kaminski, Citigroup; Roman Kosecki, MAK Energy Consulting; Martin Lin, Shell Trading Gas & Power; Craig Pirrong, Global Energy Management Institute at the Bauer College of Business at the University of Houston; John Putney, National Power; Vasant Shanbhogue, AIG Financial Products Corp.; Harald Ullrich, Constellation Energy Commodities Group; Adam Whitmore, Deloitte; Krzysztof Wolyniec, Sempra Commodities.
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