Risk Management in Energy Industries

Catalog description

All major firms engage in financial risk management. In this course, we will learn quantitative techniques for describing of how firms can use financial instruments to manage their financial risk. In particular, we will focus on risk management with respect to threats to financial viability from the weather. The course takes a highly statistical approach to the valuation and analysis of financial derivatives such as futures and options. Specific topics to be covered include the structure and pricing of options, the theory of arbitrage, financial statistics and the use of options to hedge financial risk. Students will gain experience using the Black-Scholes equation to value financial options, and will also learn strategies for hedging financial exposure to large commodity price variations. The techniques discussed in this class will be primarily illustrated using weather and energy commodity derivatives, but can be applied to a large variety of different commodity markets.