Real Options and Energy Management

Book description

• Designed to specifically aid valuation and investment decision-making within the energy industry
• Brings together the leading practitioners, consultants and academics from the energy sector who present the most up-to-date real option approaches and techniques, such as the diagrammatical approach, to help the industry move away from the current climate of uncertainty in the market
• Provides brand new case-studies and examples of the use of real options in the industry to demonstrate how the latest techniques can be applied to power generation, fuel supply and demand issues, and strategic as well as environmental issues in the energy sector
• Additionally, includes the fundamentals of real option pricing and modelling, such as option valuation, modelling approaches, and optimisation
• Emphasises applications of theory to practical situations with worked examples that enable the reader to adopt them in their own projects

Book details

ISBN

Book 9781899332984 / EBook 9781908823212

Publish date

1 Nov 2002

Format

Paperback

Size

155mm x 235mm

Author biography

Ehud I. Ronn

Ehud I. Ronn is a Professor of Finance at the University of Texas at Austin and Director of the Center for Energy Finance Education and Research at the McCombs School of Business. Dr. Ronn obtained his B.Sc. and M.Sc. in Economics at the Technion, the Israel Institute of Technology, and his Ph.D. in Finance from Stanford University. He has published articles on investments, interest rate-sensitive instruments and energy derivatives in the academic and practitioner literature, including Journal of Finance, Journal of Business, American Economic Review and Energy & Power Risk Management. Prior to joining the University of Texas at Austin in July 1988, Dr. Ronn was a faculty member of the business schools at the University of California, Berkeley, and the University of Chicago. While on a two-year 1991 - ’93 leave of absence from the University of Texas, Dr. Ronn served as Vice President, Trading Research Group at Merrill Lynch & Co., where he was responsible for the valuation and hedging of a wide array of interest rate-sensitive securities, from callable bonds to exotic options. Since 1993, he has served as consultant to government agencies, an insurance company, investment banks, risk advisory rms and an energy-derivative software vendor in the interest-rate and energy-commodity arenas. In the energy-consulting area, Dr. Ronn has addressed the multiple issues of Risk Assessment; Construction of Optimal Hedge Portfolios; VAR and CVAR; Dual-Fuel Options; Valuation of Load-Following Services; Modelling Energy Prices and Pricing Monthly and Daily Options; and the Valuation and Optimal Management of Storage Facility. Dr. Ronn has addressed practitioner as well as academic audiences at energy conferences and training courses.

Table of contents

CONTENTS

Introduction

Ehud Ronn

PART I: OPTIONS FROM OPTIONS: FINANCIAL OPTIONS MEET REAL OPTIONS

1 Risk-Neutral Stochastic Processes for Commodity Derivative Pricing: An Introduction and Survey

Duane J. Seppi

2 Options and Option Valuation Techniques

Steve Leppard

3 Diagrammatic Approach to Real Options

Steve Leppard and Fabio Cannizzo

4 Optimisation and Optimisation Techniques

Shannon Burchett and Deepankar Biswas

5 Applying Stochastic Dynamic Programming to the Valuation of Gas Storage and Generation Assets

Tom Weston

6 Derivative Modelling Approaches in Real Asset Valuation

Sailesh Ramamurtie, Aram Sogomonian, Adrian Dragulescu and Larry Li

PART II: REAL OPTIONS AND THE ENERGY INDUSTRY: APPLYING REAL OPTION VALUATION TO POWER GENERATION AND ANCILLARY SERVICES

7 Operating and Risk Managing Power Plants

Alexander Eydeland and Krzysztof Wolyniec

8 Power Plant Operations and Real Options

Chung-Li Tseng and Graydon Barz

9 Valuing and Hedging Real Options

B. Sailesh Ramamurtie and Brian Bizzano

10 Peaking Plant Valuation: A Discounted Cashflow/Real Option Comparison

J.P. St. Germain and H. Brett Humphreys

11 Price Spikes and Real Options: Transmission Valuation

Michael Rosenberg, Joseph D. Bryngelson, Nikolai Sidorenko and Michael Baron

12 Price Interactions of Baseload Supply Changes and Electricity Demand Shocks

Robert Elliott, Gordon Sick and Michael Stein

13 Modelling Generation Assets

Blake Johnson and María Inés De Miranda

PART III: PRIMARY INPUTS: GAS AND OIL

14 Valuation of the Operational Flexibility of Natural Gas Storage Reservoirs

Spyros Maragos

15 The Growth of Flexible Offshore Oil Fields

Larry Chorn and Shashidhar Rajagopalan

16 Valuing Proven Undeveloped Petroleum Reserves using Real Options

John McCormack, Gordon Sick and Dan Calistrate

17 Valuation of Petroleum Reserves with Quantity and Price Uncertainties: The Case of Woodside Energy

Stuart Connell

PART IV: STRATEGY AND ENVIRONMENTAL ISSUES IN ELECTRIC POWER

18 Real Options for Real Assets - A No Arbitrage Approach

Chris Harris

19 Schemes of Emissions Management, Bottom up Approaches to Internalising the Cost of Sulphur Dioxide Emissions

Shannon Burchett and Deepankar Biswas

PART V: CASE STUDIES

20 Valuing Generation Assets Using Real Option Competitive Price Analysis: A Step-by-Step Valuation Example for a Portfolio of Generation Assets

Frank S. Li and Wang Chiu

21 Analytical Valuation of a Full Requirements Contract as a Real Option by the Method of Eigenclaims

Valery A. Kholodnyi

APPENDIX

Probability and Stochastic Calculus: Review of Probability Concepts

Michael Rosenberg, Joseph D. Bryngelson and Michael Baron

An Efficient and Accurate Computational Technique for Dynamic Programming with Markov Processes

Alexander Eydeland and Daniel Mahoney

Index

Testimonials

“Highly recommendable.“

Tobias Federico, Marketplatz Energie