I'm a finance professor and I am looking for someone with actual trading and risk management knowledge within the energy sector who can tell me about pricing and hedging energy (especially electricity and natural gas) risk. I am writing a book and looking for real world examples.

My question is which tools actually get used? Are exchange traded futures and options used in practice? Are sophisticated pricing models and numerical techniques like Monte Carlo methods used? Are sophisticated econometric models used to forecast load? etc?

What can you tell me about which tools from the academic world actually get used in the real world? What examples can you give me. Thank you for your tutelage.

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    $\begingroup$ Dear colleague! Welcome to Quant.SE and thank you for your question. If the answer was helpful upvoting and accepting it is highly appreciated :-) $\endgroup$ – vonjd Oct 5 '14 at 7:15

I am a professor too and I did work with Siemens Corporate Technology which provides the quantitative technology for their copper and electricity trading (Siemens being one of the biggest players in this area in Europe). They are mainly using sophisticated neural networks.

We also published a paper together, see my answer here:
What types of neural networks are most appropriate for trading?

If you provide a link to your university page I will establish the contact between you.


Just came across this thread...not sure if you already have your answer, but thought I'd give you a shout. In the energy business, we employ a range of models. You'll find the most sophisticated models on the Pricing desks, Risk Management desks and the Options trading desks. A variety of products are traded - futures, forwards and swaps. For options - in power, you'll find fixed strike options for forward months and "cash"/inside the months; the latter are struck daily. In natural gas, usually index options and monthly options trade. Calendar spreads are pretty common in gas. Also, heat rate options are somewhat liquid. On the pricing desk - a number of structures - heat rate call options, electric load serving (has the characteristic of short gamma), nat gas storage, heat rate call options (phys and financial) - all of which require a fair amount of analysis are traded. There's too much to list in one place - but if you google Energy Risk by Edeyland - that will give you a good starting point. Hope this helps.

  • $\begingroup$ I suppose the reference is "Energy and Power Risk Management: New Developments in Modeling, Pricing, and Hedging by Eydeland, Wolyniec, 2003, Wiley $\endgroup$ – vanguard2k Sep 5 '17 at 12:58
  • $\begingroup$ "@vanguard2k - yes sir, that's the one....thanks for the detail there...I missed that. $\endgroup$ – Chet Sep 7 '17 at 2:23

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