An Introduction to Models for the Energy Markets

An Introduction to Models for the Energy Markets
The Thinking Behind Econometric Techniques and Their Application

by Ronald Huisman

Transportation, storage, seasonality and settlement issues hardly figure in financial markets and their modelling. Yet, they are crucial to the working of energy markets and, as a result, traditional financial models must be customised to give useful results. More broadly, traders and portfolio managers, who make crucial decisions based on the output of these models, should be familiar with their power and their limitations. Ronald Huisman has combined both academic and practical approaches in "An Introduction to Models for the Energy Markets" to provide the reader with a clear exposition of the thinking behind the range of models used today in energy finance - from the most basic to the cutting edge. In each chapter, a series of case-study examples offers the reader practical examples of the models' application as well as insights into extension and development. "An Introduction to Models for the Energy Markets" is an essential purchase for all risk and portfolio managers, analysts and researchers for energy companies, banks and energy investment companies. It will also be required reading for students and academic researchers in the energy area.

Ronald Huisman is Associate Professor of Financial Economics and Energy. He is also a director of FinEdge International Group. The FinEdge International Group consists of research-oriented companies working on innovative solutions with respect to financial strategies and trading and investment management in international financial markets. He has published many papers on this subject and has also contributed to various edited books on energy economics.

Table of Contents
1 Data Analysis  
Summary statistics: average and standard deviation
The histogram
Summary statistics: skewness and kurtosis
Distribution functions
Why do we need models if we have distributions?

2 Models
What to model: actual prices or log prices?
Models
Parameter estimation
Concluding remarks

3 Standard Models for Prices and Volatility
Characteristics of energy prices
Mean-reversion models for energy prices
Measuring volatility
Concluding remarks

4 Beyond Mean Reversion
Modelling price spikes
Concluding remarks

5 Factor Models for Forward Prices
The information embedded in forward prices
Factor models
The Kalman filter
Estimating the parameters in a long-term-short-term model
Any other factors?
Concluding remarks

6 Extreme Value Theory
Estimation procedure for the tail index
Risk management
Concluding remarks

7 Methods for Valuing Real Options
Real options in energy contracts and real assets
Black-Scholes related formulas
A power plant as an option
Option valuation with trees Incorporating operational constraints
Least Squares Monte Carlo Concluding remarks

More Information
Homepage of the Book
<link people/ronald-huisman _blank>Personal Homepage Ronald Huisman</link>

ISBN-10: 1-906348-22-7
ISBN-13: 978-1-906348-22-9