• Mahmoud Hamada: Fair Pricing of Energy Derivatives - A Comparative Study

  The Australian National Electricity Market (NEM) is a highly volatile market in which price setting is driven by the law of supply and demand. The volatile nature of this market presents significant risk to market participants and as such stabilisation of price has implications for the prevention of financial distress. To alleviate the risk associated with this volatility, over the counter and eventually exchange traded - derivatives allow hedge positions to be established, thus resulting in a less volatile hedged exposure to the underlying. With the growth of derivative trading for market participants, consistent methods of derivative pricing become important. This paper is a comparative study of two existing quantitative approaches for pricing energy derivatives, namely: a cash-flow^� at risk model based on Monte Carlo simulation of the underlying spot price and the SDE approach based on no-arbitrage theory utilising convenience yields and cost of carry to address the inability to store electricity. The paper provides a presentation of the underlying theory of the two approaches with an empirical comparative study, contrasting calibration methods to quoted brokerage premiums and statistical methods of estimation from historical data. Advantages and disadvantages of both methods are discussed in light of the results obtained.

  Paper: Hamada_Oct04.pdf

• Joe Maisano: Effectively Managing Weather Risk with Weather Derivatives

  This presentation covers the following topics:

  • Weather risk
  • Weather risk management
  • Origins of the weather derivatives market
  • Market structure and growth
  • Institutional details
  • Pricing of weather derivatives
  • Securitisation of weather risks
  • Discussion

  Paper:Teddy Oetomo and Max Stevenson, "Hot or Cold? A Comparison of Different Approaches to the Pricing of Waether Derivatives", Maisano_Oct04.pdf

Please feel free to bring this to the attention of interested colleagues.