Power Risk Management & Analysis Workshop
Risk interpretation is continually evolving: Knowing what information to incorporate or ignore in quantitative modeling--and how to avoid bad assumptions--is vital. In this interactive, hand-on seminar the participants will learn a comprehensive power risk management methodology that addresses risk from the strategic perspective of the enterprise level all the way down to the detailed management of specific individual risks.
Participants will learn how to make value-at-risk work in practice - how to design, implement and use scalable production value-at-risk measures on the trading floor. Real-world challenges are discussed relating to measurement and computation of energy-related uncertainty and risk.
Through group exercises and case studies, participants will discuss best practices and identify key fundamental relationships, perform exercises to update models; vet standard quant models and examine emergent techniques in risk mitigation and stress testing; and apply different calculation approaches needed for different applications and understand how the underlying statistics can make or break energy risk calculations.
- In group exercises and case studies, you will examine best practices, identify key fundamental relationships and perform exercises to update models. Participants will also vet standard quant models and emergent techniques in risk mitigation and stress testing.
- You will learn when and how to apply the appropriate calculation approaches for different applications and understand how the underlying statistics can make or break energy risk calculations.
Day One
8:00 am - 12:00pm
Risk 101: Tools, Templates and Calculations
The opening session focus on understanding basic risk management analysis using specific tools to evaluate a particular company's approach. Discussion includes an overview of the key terms and definitions for energy risk management; understanding and evaluating how companies approach commodities and capital markets risk; hedging vs. optimization; legislative/regulatory outlook for derivatives; ratings, and credit implications, including:
- The statistical foundations of risk
- Principal tools of risk analysis, including the fundamental concepts of VaR, EaR and risk management
- Introduction to Monte Carlo simulation, correlation and Cholesky decomposition
- Fundamentals of market risk and how to calculate value-at-risk (VaR); three approaches to calculating VaR - model-building, historical simulation and Monte Carlo simulation- advantages and disadvantages
Exercise: Statistical modeling and confidence intervals - Energy Budgetary Risk
Exercise: Monte Carlo simulation and correlating random numbers
Exercise: Comparing the three approaches to calculate VaR for a skewed portfolio
Exercise: Cornish-Fisher expansion to correct gamma error
Lunch
1:00 pm
Principals of Enterprise Wide Risk Management
In this session, we focus on the fundamental principles of enterprise wide risk management from strategic corporate goals to risk identification and reporting. The discussion includes methods and challenges of risk identification beyond financial instruments, to corporate wide earnings at risk measures. Real-world challenges are discussed relating to measurement and computation of energy related uncertainty and risk. Participants will learn:
- What is risk worth? Moving beyond value at risk to value of risk
- Impact of current regulations on use of derivatives for risk management
- Regulated cost recovery of capital asset investment for reliability and risk
- Keys to successful wnterprise-wide risk management
- Strategic risk management and planning
- Modeling known known's, known unknowns, and unknown unknowns
- Risk committee and policy essentials
2:30 pm
Break
3:00 pm
Energy Derivatives, Pricing and Hedging
Understanding the valuation of options and derivatives; best practices to keep analysts on point, considerations in the option and derivative markets and how these elements impact the valuation on these instruments. Participants will learn different calculation approaches needed for different applications and understand how the underlying statistics can make or break energy risk calculations, including:
- Fundamentals of Hedging Energy Risk
- Price volatility; hedging strategies; understand how correlation and hedging work together to manage risk
- Forecasting volatility using Geometric Brownian Motion (GBM), mean reversion jump diffusion and other financial engineering models
- Develop the framework to analyze derivatives structures and long term contracts
- Using the Efficiency Frontier and the Sharp Ratio to determine VaR limits and risk tolerance
- Apply the variable of credit risk; identify the issues and use the appropriate models
Exercise: Portfolios and volatility - getting the units right
Exercise: Energy and energy volatility forecasting
Exercise: Monte Carlo modeling of risk factors
Exercise: Calculating the value demand uncertainty risk
Exercise: Building a weather hedge
Case Study - Hedging Energy Exposure
Case Study - Layered Hedging Strategy
5:00 pm
Day One Concludes
Day Two
8:00 am
Hedge Optimization to Increase Cash Flow and Minimize Risk
Utility hedge design has generally focused on creation of balanced physical positions largely independent of market prices. Although disciplined rules applied to cover physical exposure work well, they fall far short of optimal hedging. Unleash the latent value of generation assets and load obligations by turning risk management into an affirmative business tool that drives value and reduces uncertainty in budgeted cash flows. This is a hands-on session that builds on lessons learned in previous sessions and will walk attendees through exercises on portfolio hedging for actual utility portfolios, including:
- Interpreting and applying metrics of hedge effectiveness
- Where basic hedge strategies fall short
- How to apply dynamic hedging to meet corporate goals
- Case studies in hedge applications with review and interpretation of results
Exercise: Regression Analysis of Hedge Effectiveness
Exercise: Delta and Dynamic Hedging
10:30 am
Break
10:45 am
Analytics of Managing Commodities Risk as Markets Evolve
This session will outline the knowledge and skills needed to pursue a comprehensive risk strategy in today's ever-changing commodities marketplace. Through practical exercises from the power sector, the instructor will walk participants through the process to develop a strategy that is comprehensive enough to take account of traditional fundamental drivers of price volatility while being flexible enough to cope with the new demands of the emerging regulatory framework. Key elements include:
- Incorporate current margin and capital requirements to your risk models
- Consider other trends in more recent instruments (weather contracts, catastrophic, volatility indices and credit default swaps)
- Implementing extreme value theory (and other lessons from the banking crises)
Exercise: Building a NYMEX gas portfolio VaR calculation from scratch
12:00 pm
Lunch
1:00 pm
Case Studies: Risk Mitigation/Modeling
The focus is on how to make value-at-risk work in practice—how to design, implement and use scalable production value-at-risk measures on real trading floors. The relationship between risk and value is further developed as we apply financial engineering principals to strategic capital asset problems. Participants will discuss best practices/identify key fundamental relationships as well as perform exercises to update models; vet standard quant models and examine emergent techniques in risk mitigation, strategic valuation and stress testing, including:
- Selection and use of risk metrics and value drivers
- How to incorporate forward market prices, unit characteristics, forced outages, and retail load
- Visualization of market and physical component contributions to risk
- Model validation and benchmarking of results
- How to forecast strategic project risk using financial engineering methods
Exercise: Valuing Physical Energy Assets using Financial Engineering Tools
Exercise: Calculating the value of Energy Storage for Renewable Energy Intermittency Risk
3:00 pm
Program Concludes
COVID-19 Information: Please see the PGS COVID-19 policy. You can confirm each hotel's specific COVID-19 policy using the link(s) below.
The price for this comprehensive two-day seminar is $1,795 (USD).
Register online or call (843) 212-4038.
- Additional attendees and government employees receive a 10% discount.
- Register 4 or more attendees and receive 20% off. Special pricing is available for groups of 5 or more. Call (843) 212-4038 for assistance.
Payment is due prior to the start of the seminar by Visa, Master Card, American Express, or corporate check. Seminar fees are charged at the time of registration unless other arrangements have been made. Checks payable to “PGS Energy Training,” 26 Teal Lane, Hilton Head Island, SC 29926. Cancellations result in a credit good for 2 years, transferable to a colleague. Substitutions may be made at any time. For more on PGS policies, contact our offices at (843) 212-4038.
This live group seminar is eligible for 14.5 CPE credits in Specialized Knowledge. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit.
As of January 1, 2002, sponsored learning activities are measured by program length, with one 50-minute period equal to one CPE credit. One-half CPE credit increments (equal to 25 minutes) are permitted after the first credit has been earned in a given learning activity. You may want to verify that the state board from which your participants will be receiving credit accepts one-half credits.
PGS is a NASBA-registered CPE sponsor and a GARP-approved CPD provider — see accreditation details.