text_combined: preface book julie introduction looks fine made cosmetic changes typos split infinitives slipped safely ignore english even second language corrections pink vince julie 08 01 2000 07 43 10 vincejkaminski cc subject preface book vince hope well spoke ago write preface book kindly offered would provide still possible realise extremely busy chris les went ahead wrote something want review change write preface would appreciated let know thoughts thanks julie getting close preface one main objectives writing energy derivatives pricing risk management bring together many various approaches pricing risk management energy derivatives possible discuss depth models show relate way hope help reader analyse different models price wide range energy derivatives build risk management system uses consistent modelling framework believe practitioners last point important continue stress articles presentations dangers flawed risk management giving arbitrage opportunities competitors using ad hoc inconsistent models different instruments markets see also others propose consistent models however wish concentrate one particular model models exclusion others believe choice rest user although probably clear discussions model prefer therefore try give clear account possible advantage disadvantages models reader make informed choice models best suit needs order meet objectives book divided 11 chapters chapter 1 give overview fundamental principals needed model price energy derivatives underpin remainder book addition introducing techniques underlie black scholes modelling framework outline numerical techniques trinomial trees monte carlo simulation derivative pricing used throughout book chapter 2 discuss analysis spot energy prices well analysing empirical price movements propose number processes used model prices look well know process geometric brownian motion well mean reversion stochastic volatility jump processes discussing showing simulated parameters estimated chapter 3 written vince kaminski grant masson ronnie chahal enron corp discusses volatility estimation energy commodity markets chapter builds previous one examines detail methods merits pitfalls volatility estimation process assuming different pricing models introduced chapter 2 examples crude gas electricity markets used illustrate technical interpretative aspects calculating volatility chapter 4 examines forward curves energy markets although curves well understood straight forward financial markets difficulty storage many energy markets leads less well defined curves chapter describe forward price bounds energy prices building forward curves market instruments outline three main approaches applied building forward curves energy markets arbitrage approach econometric approach deriving analytical values modelling underlying stochastic factors chapter 5 presents overview structures found energy derivative markets discusses uses examples products analysed chapter include variety swaps caps floors collars well energy swaptions compound options asian options barrier options lookback options ladder options chapter 6 investigates single multi factor models energy spot price pricing standard energy derivatives closed form solutions forward prices forward volatilities european option prices spot forwards derived presented models chapter including three factor stochastic convenience yield interest rate model chapter 7 shows prices path dependent american style options evaluated models chapter 6 simulation schemes developed evaluation european style options applied variety path dependent options order price options incorporate early exercise opportunities trinomial tree scheme developed tree built consistent observed forward curve used price exotic well standard european american style options chapter 8 describes methodology valuing energy options based modelling whole market observed forward curve approach results multi factor model able realistically capture evolution wide range energy forward curves user defined volatility structures extremely general form closed form solutions developed pricing standard european options efficient monte carlo schemes presented pricing exotic options chapter closes discussion valuation american style options chapter 9 focuses risk management energy derivative positions chapter discuss management price risk institutions trade options derivatives faced problem managing risk time begin delta hedging portfolio containing derivatives look extensions gamma hedging illustrating techniques using spot forward curve models general model presented chapter 8 ideally suited multi factor hedging portfolio energy derivatives also discussed chapter 10 examines key risk management concept value risk var applied portfolios containing energy derivative products discussing concept measure look key inputs volatilities covariances correlations etc estimated compare fours major methodologies computing var delta delta gamma historical simulation monte carlo simulation applying portfolio energy options chapter also look testing var estimates various underlying energy market variables finally chapter 11 review modelling approaches credit risk look detail two quite different approaches creditmetrics j p morgan 1997 creditrisk credit suisse financial products 1997 detailed information publicly available together provide extensive set tools measure credit risk present numerical examples applying techniques energy derivatives begin stress models methods present book tools used benefit understanding tool market works techniques describe certainly magic wands 8 waved data risk management problems provide instant perfect solutions quote riskmetrics technical document amount sophisticated analytics replace experience professional judgement managing risk 8 however right tools correctly used make job lot easier